Sunday, December 26, 2010

Potential Money

Last week I wrote about fiat money, and its fantastical symbolic value based purely on a collective faith in our ability to create value – a faith in the human mind. Without any intrinsic value, money can only realize value by interacting with the human mind. So how can we think about this in a more formal way?

To me money is a kind of meta-energy. In physics, energy is defined as the capacity to do work or effect a change – a change in position or form. This is a fairly simple analogy since money can be used to build, distribute and reshape our environment in so many ways. When we lend or invest money, it is largely for this potential. The key word here though is ‘potential’.

The potential energy of a system is typically defined in terms of the relative position of its components – the structural arrangement of a mass or object within a force field. Take for instance the potential energy of a ball that is held at the top of a very steep hill. Its potential energy is not simply its mass but is the product of its mass, the force of the gravitational field and its height or distance from the surface (m x g x h). Place the same ball on the same hill on the moon and its potential energy is immediately less. Out there in space, out of the influence of the gravitational fields, the ball has virtually no potential energy at all.

Money, it occurs to me, is not that different.

Tuesday, December 21, 2010

Of Mind and Money

Ever since I found myself unwittingly heading a microfinance institution I have had money on my mind. Not so much how to make more of it, but what it means. It’s such a critical component of so many human interactions, so caught up in so many aspects of our psyche and so baffling in its complexity. It can make and break bonds in human systems, foster marriages, alliances and enterprise, or bring them down. Or it can vanish in slow trickles, dissipating into a vast ocean, leaving behind a pile of random stuff as a reminder that it passed through.

But what is money? Money the way it was first conceived several thousands of years ago is easy to understand. It was a mechanism for simplifying exchange, making it easy for two people who did not have a fair trade of goods (I have something you want but you have nothing I want to give me in return) or had a mismatched timing of goods (my wheat has harvested now but you won’t have your strawberries until the winter) to transact by way of some third product that was not easily destroyed and had widespread utility. This kind of ‘commodity’ money – like salt for instance - had intrinsic value, it was something everyone needed. As it morphed to metal for the convenience of portability, it still mirrored its melt value or its utility as a standalone product. It did not matter if you ‘counterfeited’ it because it was worth simply its utility and the effort of mining it. But metal is still heavy and inconvenient to port so then there came notes, pieces of paper that represented some amount of metal, typically gold, that was held somewhere safe. Not too different, but with a faith in the issuing party that you could exchange the piece of paper for metal – a material of real value and utility.

Saturday, December 18, 2010

Physics of Poverty at

I am now writing a weekly column for YourStory (, also called Physics of Poverty that will post every Monday. Some things taken from what I have already written here but also some new stuff. I will start posting the column here as well. Here is the first post that appeared last week.

What is the question?

Physics of Poverty series by Dr. Tara Thiagarajan, chairperson, Madura Microfinance Ltd.

Alright, I’ll come right out and say it. Microfinance has done very little to alleviate poverty. Practically speaking, even after five loan cycles, virtually all of our borrowers are still poor—poor enough to be eligible for yet another microfinance loan.

The premise of microfinance has been that giving poor people a loan is all they need in order to get out of poverty. This presumes that simply giving someone money will first turn them into an entrepreneur, and that once they are thus transformed, that their entrepreneurial abilities will far exceed that of even the most educated entrepreneurs who fail more often than they succeed. This premise makes light of the difficulties of entrepreneurship and of the greater problem of the impoverished ecosystem within which the poor operate. On the other hand, in poor rural areas, where employment opportunities are few and most of India’s poverty is thus concentrated, effective entrepreneurship is a crucial component of progress. So how else to catalyze entrepreneurship but through microfinance? What about those pictures of Rajalakshmi and Kannamma smiling broadly alongside their cowshed and petty shop, the poster women of microfinance success? Surely there is something to that? There is a little. But that’s just it. It’s a little, very little.

Saturday, December 11, 2010

Hear Ye! Hear Ye!

One of the greatest challenges our rural folk face is a lack of access to information about markets - not just distant markets but neighbouring markets as well. Few of them read and our research has shown that they don’t tend to travel beyond a few kms for commerce (see my earlier post Do not disturb). When they do travel longer distances it’s primarily to visit temples on pilgrimage. Consequently, many of them claim that they don’t need a phone because everyone they know and interact with lives close by. I was lamenting the difficulty of getting new product information to people who live in these circumstances and my husband very helpfully offered up that it sounds like we need to have heralds or messengers and town criers like they did in medieval Europe. That got me thinking and I started to read about these roles. I think he was on to something.

Saturday, November 27, 2010

Creating Social Value

We just sponsored Sociopreneurship 2010, an event that brought together social investors, industry experts and the media for panel discussions and also recognised and showcased social innovations and entrepreneurs. This event is timely in a country like India and is a mark of the shift in thinking away from non-profit models to market based solutions that can operate at large scale and therefore create social value more systemically.

When we begin to talk specifically about ‘social’ entrepreneurship though, it really begs the question: What does it mean to create social value? I think we all have a notion of what it means but when you try to define it and measure it, it gets quite murky and difficult. One fundamental implicit assumption of social value is social equity or equality of opportunity and access. In this sense we commonly think of social enterprise as an organization that addresses a low income market with a product that can raise standard of living, either by providing greater opportunity or convenience. However, as I have discovered in the past five years, simply product and market are not sufficient.

Sunday, October 24, 2010

Do not disturb

One very eye opening fact that is emerging time and again in our research is that rural microentrepreneurs access very small markets. Our first survey found that about three quarters do not buy or sell beyond a 5 km radius and only 2% venture beyond 20 km (the ‘middle men’?).

Here’s a view from Google Earth of a region of rural Tamil Nadu that is 5 km across. It has a cluster of about 12 villages with a population roughly between 4 and 5,000, typical for most of India. That’s a really small market to be limited to.

Monday, October 11, 2010

It's not a pyramid!

CK Prahalad’s book The Fortune at the Bottom of the Pyramid has firmly established our visual impression of how incomes are distributed as a pyramid. A strong, solid structure with the poorest at the bottom that slowly tapers, kind of holding up the apex.

In reality it looks NOTHING like a pyramid. Here’s a 3D visualization of what it looks like based on real income distributions.

Of course, if I had a lot of time on my hands I’d figure out how to plot it in 3D a lot better, maybe starting with a square shape rather than a circle so it compares better to a pyramid. But I don’t. You get the picture though. (To get more of a sense for what income distributions are like check out my earlier posts Who Cares about the Average Income and Income Distributions around the World).

Rather than put my take on the different impressions and associations you get from these pictures, I’m really curious to hear yours. What are the associations you get from this over the pyramid? I think that we need a different term to replace the ubiquitously used ‘Bottom of the Pyramid’.

Wednesday, September 22, 2010

Driving more productive interactions

Very excited that the film Shakti Pirakkudhu (Shakti Rising) that has been in the works for three years now is finally done - this week! The goal of this film is to seed different thinking among the rural poor and raise their aspirations. We have a bunch of by invitation pre-release screenings planned around the country (India) in October and will post a schedule here soon. In the United States, the film will have its premier screening at SALTAF (South Asian Theater and Literary Arts Festival) on Nov 13 at the Smithsonian in Washington, DC.

Below is the synopsis and trailer but you can learn more from the website:
India USA

Sundari is a young mother of two in a small village in South India. She has an opportunity to get a microfinance loan and wants to use it to start a business. Her husband is scornful of her ambitions - she has never been more than a housewife. As she struggles to find her feet in a trade, the village erupts into a flurry of politics with the arrival of a woman from the city looking to start a garment factory in the area. This is a story of a village woman trying to define what success means to her in the context of an expanding world view, and of a family struggling to find their equation at the crossroads of what is and what could be.

Sunday, September 12, 2010

The Madura Experiment (more refined)

It’s been a bit of a busy month for me and I haven’t had time to post. After years now of reading, surveying, observing and thinking, we (meaning Madura) are finally putting together the pieces of our socioeconomic transformation strategy. We’re taking quite a leap from the run-of-the-mill microfinance, so we’re operating like a start-up again, which is fun. But, with profits to take some chances with, so that’s even more fun. We’re looking at a massive, for profit experiment in reengineering the socioeconomic system dynamics of our members - about half a million poor women in rural Tamil Nadu, moving rapidly to a million. This involves putting in place a large scale smart phone driven data collection system, a mobile phone rollout for our members that will support a host of applications in the future, and development of a cool cutting edge network analysis platform that will allow us to track the evolution of the structure and dynamics of our member network so that we can nudge it towards a more productive trajectory of evolution. So here’s the story, (a bit of a synthesis of many of my previous posts).

Monday, August 16, 2010

Read More, Make More

I’m betting heavily on the value of information. From everything I know in theory and intuitively, without timely access to information, not much can get done, and certainly very little can get done well. This is true for societal progress in general and for organizations. Without information there would be a lot of resources wasted reinventing the wheel and we would lose the benefit of access to the collective ideas around us. Still, this value seems sort of intangible. How do you put a number on it? Some folks in Boston from MIT and BU have tried to do just that.

In a study titled Productivity Effects of Information Diffusion in Networks Sinan Aral, , Erik Brynjolfsson and Marshall W. Van Alstyne asked the question:

Does better access to information predict an individual's ability to complete projects or generate revenue?

Tuesday, August 3, 2010

Culture and Progress

In the five years I’ve now spent working in rural Tamil Nadu, I have been frequently surprised by the level of creativity that surfaces at various events that we hold. On the other hand real progress and innovation is hard to come by. Somehow village societies don’t make the leap. My father believed that this was a consequence of attitude – the attitude of waiting around for someone from somewhere to come and do it for them, ‘it’ being everything really. He blamed it on the government programs of handing out free stuff.

As a child my father spent all his holidays in the village, shuttling between Poolankurichi, Nerkuppai and Thekkur by bullock cart. He was also the first of his family to travel to the United States for graduate study. He was fascinated with the story of the pilgrims and how they built their lives from scratch into the America that he went to. In the last ten years of his life when he took on his work in microfinance, a big part of his goal was to change mindset. Several times I accompanied him to villages where he would tell the villagers about the pilgrims and how they got together and took responsibility for their own progress. In 2002 he started a project he called ‘Village Mission’, the idea being to galvanise villages to take responsibility for their own progress by providing seed capital for services (a small clinic, vocational training, school facilities for instance) that the village would get together to build and manage.

I inherited these projects shortly after his illness in 2003. I spent hours in the two villages where the pilot was in progress talking with the village head and various key people. Yet they always fell back on the refrain of ‘Why don’t you do it for us (build it, run it, provide it all for free). Our people will worship you as a God.’ Stupidly we even gave in to some of their requests and built them some buildings (for free) but never got them to take ownership. As hard as we tried, we couldn’t get them excited about taking any stake in it – in running it or taking any responsibility for it, even though they all agreed that all of these were very necessary and useful for the village and had come up with their wish list themselves. Finally we quit. I’ve thought a lot since why we failed so miserably. I'm not convinced it has to do entirely with the government. Are they really just waiting around?

Recently I was sitting with my kids as they watched TV and it struck me that the ethos reflected in the shows is probably at the root of the difference between the American pilgrims and these village folk. Embedded in so many American kids’ shows is a theme (or even meme) of ‘Get up, get to it. You can do it.’ Take Bob the Builder, for example. It’s classic Americana. ‘Can we build it? Yes we can! Can we fix it? Yes we can!.’ Its theme is so much a part of American culture that even Obama used it for his election campaign.

Contrast that to our Amar Chitra Katha comics, now all made into animated TV cartoons. They run the frequent theme ‘For your sacrifice and penance Lord XYZ will appear before you and grant you a boon.’ This is not just TV but deeply ingrained in the psyche.

At the extremes our village folk take vows of hardship and expend tremendous energy in the desperate hope that their wish will be granted, going so far as to roll in the hot sun for hours or put hooks in their backs and drag stuff around . In a more general context, I realize that the village folk are not lazy and just waiting around. Rather I’m betting that I might have had better luck getting the village to take on some immense physical hardship as a method for bringing progress to the village rather than trying to get them to get to it and build it themselves.

Our villages need Bob the Builder! (Happy to see its now on TV here in Hindi!)

Saturday, July 17, 2010

Social Impact Evaluation in Interconnected Evolving Systems

Today there are many development economists that focus on social impact evaluation studies. These studies typically compare groups receiving an intervention to groups that did not. For example, did the group that received microfinance do better than the group that did not? Although they attempt to ‘control’ for variability between groups, I see some fundamental flaws in this approach. First, to be meaningful comparison, a ‘control’ group must be independent of the intervention group. In society, which by definition is an interconnected system, this is virtually impossible and you can never control this way for network effects.

For example, lets say the people who received microfinance in the village used the money to buy goods from the people who didn’t. Its not impossible that this could result in the 'control group' getting richer because they could sell more. Compared to them, the microfinance takers could then look poorer because, while they may also have overall bought and sold more, they also had to pay back their loan with interest to the lender. This is a gross and very direct example of course, and it will never be so simple to parse out the network effects. Recognizing this, if you instead decide to move your control group to a distant location this will not really solve the problem. For one thing, the more distant the ‘control’ community, the more the variability in the circumstances and the more confounding this variation can be. But more important, network effects can be far reaching and change dramatically as the size of the network changes. So physical distance does not help unless you compare two communities that are completely self contained economies (in which case they have evolved so separately and so differently that it will be a useless comparison anyway).

This brings me to a second extremely important point. Networks like society are open feedback systems that evolve continuously over time. This means that the impact you find that microfinance has today (network effects notwithstanding) is completely irrelevant to tomorrow and therefore cannot be prescriptive or even diagnostic in any way. For example, cell phone penetration and use is climbing rapidly in rural India today and dramatically changes the way people interact and transact, opening up distant markets and changing the rate at which people can buy and sell. Just imagine the impact of being able to call a buyer in the neighbouring town to coordinate an order and delivery instead of having to travel the three hour distance by bus! So if you conducted your traditional microfinance impact study today, when cell phone penetration was low, maybe it has little impact because the opportunities to interact rapidly were low and therefore business was slow. Tomorrow it may have magnificent impact as the network conditions change.
So, not to sound too harsh, but in the interest of progress, having read various social impact studies on microfinance conducted at great expense and unveiled with great fanfare, I have to say What’s the point? As a practitioner interested in seeding social progress there’s nothing whatsoever I can take from these studies. It doesn’t tell me what is wrong or what should be done right. Rather it is a flawed comparison of one slice in time.

So what’s the alternative? If we want to come up with something valuable prescriptive, what we need to do is stop wasting time with such social impact evaluations and start trying to understand the network and its evolution. What we need to do is begin asking and answering questions like these:
1) What is the topology of the transport and communication networks? How does information and trade flow in these networks? What kinds of simple changes in the network could result in nonlinear benefits for the flow of goods, money and information?
2) How do ideas and innovations diffuse in these populations? How does this compare to more advanced segments of society? What can be done to create more productive diffusion?
3) What do group dynamics look like in these groups? Can we identify aspects of culture and interaction that predict why these groups fail to organize themselves and innovate? If so, what kind of innovations can we develop that shift these behaviours towards more productive dynamics?

Saturday, July 3, 2010

The Value of Money

Yesterday my mother called me to say that she is taking my six year old son to see a coin collector since he has been pestering her with questions about money. Motivated by his interest in buying yet another Ben 10 toy that I won’t get for him (jet ray, shake ray, I don’t get it...), he has become a little obsessed with finding ways to get money. Who invented it? Can he invent his own money, he wants to know. Would people take his invented money? Who makes the money? Can’t he just print some out on our printer? Who decides what its worth?

So back to the coin collector. My first reaction was that it seems a little silly and boring. What’s he going to show him, some bunch of coins from around the world? So what? But then I took a look at some of the coins and turns out it’s a very fascinating lesson in the history of money that sparked some interesting breakfast conversation today. The coins are all from ancient civilizations around the world and hark back to the first invention of money. Here are some of them:

They’re not perfect in shape and are pretty crude. You could so easily counterfeit these, was my first reaction. But that’s OK, my husband said, these coins have intrinsic value. They’re worth the metal they’re made from – x grams of brass or silver for instance. So if you wanted to counterfeit them, you would have to spend the equivalent value of energy and time to mine the metal and that has worth exactly equal to its value.

Our typical text book definition of money is as a store of value. In the last few years I have been thinking of money as being a proxy for potential energy that we accumulate on some level – since it provides the power to do work and reconfigure things. So that money should have intrinsic value (like metal) makes sense to me. You could actually calculate its value in units of energy, say joules. Today we have decoupled currency from any ‘actual value’ and created fiat money. Which means money is no longer linked to something with intrinsic value like gold bars. Given this, its ‘value’ can get progressively more distorted. With this disconnect it takes on a different life and dynamics that I’m still trying to get my head around.

So to my son, I have to say, ‘I have some notional answers to your questions and this is how I’m thinking about it, but in all honesty, sweetheart, I’m almost as baffled as you are. Why don’t you go ask Dad.’

'And, hey, I already told you that we are not going to buy another Ben 10 toy right now'.

Wednesday, June 23, 2010

Interpreting Poverty through Images

Here is an interesting post that I came across.

Exploring Different Perspectives of Poverty Through Photography
by Duncan McNicholl

Some excerpts:
Many people only experience sub-Saharan Africa through photographs. The teary-eyed child in rags is familiar to all of us as the portrait of poverty charities use to communicate a hopelessness in need of our pity and charity. I reacted very strongly to these images when I returned from Africa in 2008 after a 4 month volunteer placement in Malawi, working with Engineers Without Borders Canada. I compared the images I saw to my Malawian friends – people who embodied intelligence, resilience, and compassion – and I felt lied to.

It seemed that these photos presented by development organizations and the media were deliberately providing only one perspective of rural Africans like my friends in Malawi, which was despair.

.....This photo project, which I am dubbing ‘Perspectives of Poverty’, is not to say that people do not suffer in Africa. Malawi is one of the poorest countries in the world, and we must not lose sight of the fact that millions struggle to get by. But how we interpret the lives of others is critically important since it affects how we support those struggling to overcome poverty.....

The opposite is true of microfinance. As a community it projects only the face of success, making light of the difficulty and struggle of entrepreneurship and a landscape littered with failure.

Saturday, June 19, 2010

Mobile Phone Data Capture

Madura is about to embark on a massive mobile phone enabled data capture exercise that will create some of the largest and most unique datasets in the world on the poor. We currently have about 160 locations that manage loan repayments through a mobile app that runs on a windows platform. We are now about to make an additional 500 of our field staff capable of capturing massive information through various mobile applications. The survey apps are being tested on these same windows phones that have worked well for us for our loan servicing needs. However, in this case, the apps are much more data intense. Consequently the phones have to work much harder, run longer, be able to withstand being dropped off the bus a couple times and have sufficient memory to store data given that network connectivity tends to be spotty. We are hoping for a 2 year life for the phones. Given the number of phones and platforms out there, choosing the right one appears to be no easy task. Anyone with experience with heavy usage of smart phones, please do tell me about it!

Monday, June 14, 2010

Engineering organizations

Something that's been on my mind lately is how organizational structure influences organizational outcome. Alex (Sandy) Pentland is a really interesting guy to follow in this context and in the context of social dynamics in general. He runs the Human Dynamics lab at MIT and has created a device that can measure subconscious signals of communication (tone of voice and things like that) that can predict the quality of interactions and therefore outcome. He calls them 'Honest Signals'. Take a look at this video where he talks about them.

Friday, June 11, 2010

Is organization an innate human trait or learned?

I've posted before thoughts on why the poor tend to be fragmented in their economic activity rather than organized into groups and it sparked some discussion (see Driving socioeconomic change by making women more dependent). I've been thinking now about the ability to organize in general. Our microeducation team at Madura just got back from the first pilot testing of our digital 'mini MBA' program. This is a video based training program that brings business education to the poor that has been developed in collaboration with Dr. Madhu Viswanathan at University of Illinois at Urbana Champagne and his Marketplace Literacy initiative. They tested with two different groups - one that was reasonably educated (10th or 12th grade) and one that was largely illiterate, and came back with some very interesting learnings. Here's one: There are a couple places where the video instructor asks them to pause the video, organize into groups of three or four and talk about some particular question or topic. The groups, particularly the more illiterate group were unable to carry out this instruction of organizing into groups. It had to be explained really explicitly and they are now looking at adapting the video to include a demo of how to break up into smaller groups. So, I wonder, is organization itself an innovation that we have taught rather than an inherent human trait?

Tuesday, June 8, 2010

Madura is looking for a postdoctoral scientist

Madura is looking for a scientist who will do cool things that haven't been done before. Here's the ad:

Postdoctoral Scientist: Rural Social and Trade Networks

This is a unique position where you will reconstruct the trade and communication networks of rural South India from various large empirical data sets and make it available to the greater scientific community. Real time understanding of the social and trade network topologies and dynamics will be used to design interventions that can significantly impact the dynamics of the network as part of an ambitious large scale social experiment to bring about poverty alleviation.

The key requirements are large imagination, a strong desire to work for social change, the ability to work efficiently with large datasets in MATLAB and C and the ability to design cool GUIs that will facilitate public access to the data.

This position does carry publication potential. However the primary goal is to create understanding that can result in fast productive interventions that positively impact the standard of living.

Please submit a cover letter outlining why this interests you along with your CV to

Spread the word!

Thursday, June 3, 2010

Increasing the rate at which ideas have sex?

Interesting article in the WSJ by Matt Ridley called Humans: Why They Triumphed. He says:

Trade is to culture as sex is to biology. Exchange makes cultural change collective and cumulative. It becomes possible to draw upon inventions made throughout society, not just in your neighborhood. The rate of cultural and economic progress depends on the rate at which ideas are having sex.

Underlies the assumption on which we work at Madura - that poverty is an outcome of an impoverished network with slow flow of information. By increasing the rate at which people connect and interact with knowledge and information, we believe, interactions become more productive and magic will happen. In Matt Ridley's words we are facilitating trade and idea sex.

Wednesday, June 2, 2010

Who cares about poverty in the summertime?

Apparently not too many people.

First I’ll come out and admit that I’m addicted to playing with Google trends. I find it a fascinating commentary on our collective consciousness and weirdly entertaining. So, I was looking at search trends on ‘poverty’ across the world and there are two things that I find intriguing. First, there seems to be decreasing search volumes over the past several years although there are increasing news references. This is puzzling. But more interesting was that it was oddly seasonal, dipping twice a year. Check it out:

A country by country view was revealing. The decreasing interest over time cannot be attributed to the USA but the seasonal trend is more apparent, dipping during the summertime and then again over Christmas.

I then checked out other English speaking countries. UK and Australia both had some seasonality, less apparent in the UK than Australia, and dipping at slightly different times of the year. Turns out the dips correspond to the academic calendar for each country.

I have no idea what to make of India:

But what’s up out there? Are teachers just assigning a lot of homework on poverty all over the world?

Thursday, May 27, 2010

More on money flow

When you phrase a problem in terms of variables x and y and not real world quantities it allows you to solve it objectively without bringing in preconceived notions about the variables. For this same reason it is also helpful to look analogies. So here is one:

Lets say there is a pond into which water is poured from x different sources at various rates and leaves from y different sources at various rates. How does the water level change over time? To solve the problem you need to know the rates at which water enters and leaves the pond at different places relative to one another and the initial water level. Maybe valve two shuts off when valve one opens etc.

Now instead of a pond, lets say its a village. And instead of water, lets say its money coming in as loans, salaries and business revenues and leaving as loan repayments and purchases. How does the spending power of the village change over time? When you structure the problem in this way, you can play with these rates and quantities and see what it does.

You might argue that this kind of approach obfuscates the local changes: what happened to the specific person who took *your* money? To this I say that if we care about real change, what matters is the system as a whole and not local changes. Local changes can fool you. It could well be that one person's gain is another's loss. Or consider this, in a wave, each water molecule only moves a little so if you only knew how individual molecules were moving you could well miss the tsunami.

Of course, the pond analogy leaves out one very important thing: innovation. Innovation can be a complete game changer. But more about that in another post...

Friday, May 21, 2010

What's a newspaper for?

We (Madura) recently launched a classified ad newspaper that reaches 400,000 poor rural households in Tamil Nadu. Our women borrowers can advertise their products, services and things they want to buy and sell free of charge while companies must pay. This is a hard to reach demographic that does not generally interact with print. One of our office locations used a women's day event that gathered 700 of our women borrowers to launch the paper in their area. I didn't attend this launch but our CEO reported to me that a very large number of women took the paper that was handed out and immediately used it to wrap up the snacks that were served to them.

(One useful statistic to put this in context is that about a third of our borrowers cannot read. Still....)

Monday, May 17, 2010

What's Google? Is Obama a computer program?

I am increasingly convinced that poverty is a network problem. Poor people are less connected and linked in to the rest of the world on various dimensions. The resulting information poverty results in a poverty of opportunity and therefore economic poverty and the cycle goes on. I recently did a small survey for fun where I asked about 20 women from our self help group member base that are between 5th and 8th grade educated what the following four words meant to them:

Manmohan Singh

The majority were flumoxed by Google. No idea they said. Microsoft is a computer and Obama, is it something to do with computers? Manmohan Singh was correctly answered by a handful (6 to be exact). Others asked: Is he a Hindi film actor? cricketer?

Facebook? YouTube? I didn't bother to ask.

We don't live in the same world.

Wednesday, May 12, 2010

A physicists view of financial bubbles

Thought this would be interesting to all of you folks who are interested in making sense of the recent financial crisis (and/or trying to figure out if there is a microfinance investing bubble in India). Physicists Didier Sornette, Ryan Woodard and some others have been working to create predictive 'bubble diagnostics'. These diagnostics are based on non linear positive feedback models that have their basis in imitative human behavior. They are running The Financial Crisis Observatory which they describe as "a scientific platform aimed at testing and quantifying rigorously, in a systematic way and on a large scale the hypothesis that financial markets exhibit a degree of inefficiency and a potential for predictability, especially during regimes when bubbles develop".

Last year they published a paper called Financial Bubbles, Real Estate bubbles, Derivative Bubbles, and the Financial and Economic Crisis in arXiv (arXiv is a database of physics papers that is openly accessible) that is more of an essay and a pretty easy read. Some of the data that they show is quite striking. For instance, the abrupt and extraordinary divergence between wages and consumption as a percentage of GDP beginning in the '80s (figure 6 on p15), showing just how dramatically US household wealth and spending came to depend on the stock markets and not any real indicator of productivity or output.

Somehow I'm not surprised by all the bubbling. It is hard to keep focused on creating real value when paper value is so much easier to generate ....

Wednesday, May 5, 2010

A network view of entrepreneurship

Here is a definition of entrepreneurship that I came across in another one of Mark Granovetter's articles called The Impact of Social Structure on Economic Outcomes. He writes:
Schumpeter defined entrepreneurship as the creation of new opportunities by pulling together previously unconnected resources for a new economic purpose.
Granovetter goes on to say:
One reason resources may be unconnected is that they reside in separated networks of individuals or transactions. Thus, the actor who sits astride structural holes in networks (as described in Burt, 1992) is well placed to innovate. The Norwegian anthropologist Fredrik Barth (1967) paid special attention to situations where goods traded against one another only in restricted circuits of exchange. He defined “entrepreneurship” as the ability to derive profit from breaching such previously separated spheres of exchange.
Schumpeter's is an interesting definition and now ranks as the one I like best. Most of the other definitions of entrepreneurship I have seen approach it from the point of view of the outcome (new value created through product innovation etc.) rather than the process of network reconfiguration. The process point of view is more generalizable though because most new businesses are not all that innovative in product and fail many other definitions.

Links back to my post on more connected women being more successful..

Monday, May 3, 2010

The Strength of Weak Ties

I have been thinking a lot about how to understand poverty from the point of view of the properties of the social network. In this context, I thought I would share with you a very important paper by sociologist Mark Granovetter written in 1973 called ‘The Strength of Weak Ties’ which he has more recently revisited in a new paper called ‘The Strength of Weak Ties: A Network Theory Revisited’. Here is an excerpt:
.....individuals with few weak ties will be deprived of information from distant parts of the social system and will be confined to the provincial news and views of their close friends. This deprivation will not only insulate them from the latest ideas and fashions but may put them in a disadvantaged position in the labor market, where advancement can depend, as I have documented elsewhere (1974), on knowing about appropriate job openings at just the right time. Furthermore, such individuals may be difficult to organize or integrate into political movements of any kind, since membership in movements or goal-oriented organizations typically results from being recruited by friends. While members of one or two cliques may be efficiently recruited, the problem is that, without weak ties, any momentum generated in this way does not spread beyond the clique. As a result, most of the population will be untouched. The macroscopic side of this communications argument is that social systems lacking in weak ties will be fragmented and incoherent. New ideas will spread slowly, scientific endeavors will be handicapped, and subgroups separated by race, ethnicity, geography, or other characteristics will have difficulty reaching a modus Vivendi.
I share this because villages, which are typically poor by nature, are generally insular, tending to rely much more on strong ties with very few weak ties outside their village. Given this, one strategy Madura takes as an organization is to bring in products, services and events that foster ties across villages and to the urban economy. This may all sound like common sense but what is surprising, if you get into the models and workings of networks, is just how profound the consequences of a few weak ties can be. (I've spent the last five years thinking about this mostly in the context of the brain and it is interesting to note that the cerebral cortex, the outer layer of the brain where all the high level thinking gets done, is characterized largely by weak connections).

Saturday, May 1, 2010

Microfinance, money flow and social impact

The traditional thinking in microfinance is that it is a way to help people extricate themselves from the clutches of local moneylenders who charge exorbitant interest rates. As microfinance institutions, we believe, that by charging less we are doing great social service. Typically, when academics study the impact of microfinance, they look at people who have received microfinance compared to people who haven’t in order to see who is better off across various dimensions. Evidence suggests that even if individual borrowers are not actually making profits that exceed the interest charges, they might do better on other dimensions that relate to patterns of consumptions. Access to a lump sum of money at once, for instance, allows borrowers to afford goods and services they would otherwise not be able to that give them a better quality of life. However, if we really want to understand the social impact, looking at how some individuals compare to others is not sufficient. Rather we need to understand the flow of money more systemically. Here’s why:

In my view the goal is to seed systemic change. Which means the system as a whole should thrive and not just select individuals within it. If we take a village that has its own local economic ecosystem along with some bilateral trade links to the outside world and try to unravel the impact of a loan, it is not so simple. As a microfinance institution we lend urban acquired money into the village, but then we take back more than we lend in the form of interest. The money we take back goes back to the village in part as salaries to the people we employ there. The rest goes to other stuff in urban areas, maybe out to shareholders who will spend part of it in another country (like me for example - most of my money seems to go to Lufthansa). The local moneylender, on the other hand, may charge a higher interest rate, but being local will probably spend most of that income in the village supporting the overall village economy. So potentially, local lending at higher rates could be more beneficial to the village if the money is in turn spent in the village, compared to lower rates where the money leaves the village. So the impact of microfinance on the village has a lot to do with the dynamics of money flow and not just what happens to the borrower who took the loan. (See also my related post, ’Where does the money go’).

Monday, April 26, 2010

Connected we succeed, divided we default

At Madura Microfinance, one of our primary assumptions is that women who are more informed and better connected will be more successful and make more productive use of loans. So, much of our efforts are aimed at increasing networks and access to information among our members. A PhD Student from Oxford, Sangamitra Ramachander, recently studied our women’s borrower groups to see what kind of factors predicted whether a group went successfully on to the next higher level loan or would default. This is still a work in progress but there are some very interesting results. Here is one odd one that stood out to me. She found that women that travelled more frequently to neighbouring villages (but surprisingly not the nearest towns) were several times more likely to be successful rather than default. It’s not clear whether this factor is causal or the outcome of their success but it’s something worth exploring further. Possibly, women who travel more to neighbouring villages are more informed about local markets and better connected within them?

Monday, April 19, 2010

Driving socioeconomic change by making women more dependent

Yes, I meant to type dependent. Here’s why.

One of the great drivers of mankind’s progress has been our ability to specialize in our knowledge and functions, organize as groups or entities that share knowledge and create amazing things that no individual could do on his or her own. Done well, the outcomes of organizations are far greater than the sum of its parts. The most awesome things that mankind has created – jet planes, space stations, the power grid, they are all borne of interconnected, highly dependent networks of people. Our (Madura’s) women micro-entrepreneurs are the antithesis of this dependence. They are highly unspecialized and operate independently (women, only because that’s who we serve, but this applies to men too). These micro-entrepreneurs strategize, produce, market, manage accounts and do everything on their own. This means that they rarely have the opportunity to benefit from the knowledge of others and rarely have the opportunity to gain deep functional expertise as they are so busy doing a little of everything. That’s a huge limitation on what they are able to achieve. It is remarkable how few of our women borrowers think to band together and create something bigger than any one of them could do alone and I often wonder why this is. Most of the women I have talked to who have grouped in twos or threes have only done so in order to pool their loans to afford an asset, not for aspirational reasons. I’ve been thinking about what drives organization in society and not coming up with a satisfying hypothesis yet. If we could figure this out, it could be very powerful. Ideas folks?