DPhil (PhD) candidate in Economics at the University of Oxford, and Skoll Centre affiliated researcher, Muhammad Meki, and his colleagues describe their early research into launching a microequity programme in Indonesia for microentrepreneurs in collaboration with Allianz.
In many developing economies, a significant proportion of households derive their primary income from microenterprises involved in retail, light production of goods such as clothes, trade, and smallholder farming. Individuals who operate and work in such small firms tend to be poor; as such, improving their performance offers the potential for wide-scale poverty reduction.
There has been much talk about the potential for microfinance to lead to such poverty alleviation, however recent rigorous evaluations of microcredit have revealed more limited impacts. Reflecting on the evidence, it may be more appropriate to view microcredit as a way to ‘grease the wheels’ of development, rather than as a ‘silver bullet’ for transformational change (Banerjee, Karlan, and Zinman, 2015). Recent research also suggests that to help entrepreneurs better manage their enterprise, personalized approaches like consulting and mentorship can have more significant benefits than generic business training programs (Karlan and Valdivia, 2011; McKenzie and Woodruff, 2016; Valdivia, 2015; Bruhn, Karlan, Schoar, 2018; Brooks, Donovan, and Johnson, 2017).
First TNF investee and first graduate to mentorship phase — fish cake producer.
Since a key part of economic development is the movement from having most people working in small enterprises, to working as employees in larger, more productive enterprises, some experts believe that we should focus more on the small set of ‘transformational’ entrepreneurs rather than on the large group of ‘subsistence’ entrepreneurs (Schoar, 2010). Even the aforementioned microfinance studies showed that while microcredit does not generate large impacts on average, it can provide a significant boost to relatively more successful entrepreneurs (Banerjee, Karlan, Zinman, 2015; Meager, 2016).
TNF investee — broilers and gas cylinders seller.
Adding microequity to the picture?
Equity-based financing may be an alternative way forward for transformational entrepreneurs, since it can provide them with a more flexible form of finance that is better suited to the needs of a growing business, especially as it often comes with personalized support from investors to overcome the unique business challenges they face. While equity financing has the potential to grow rapidly in emerging markets, especially with developments in financial technology and the digital economy, the minimum financing amounts tend to be well beyond the needs of many grassroots entrepreneurs. What they may need is a more nuanced form of equity-based financing, tailored to microenterprises: microequity.
Lembaga Demografi (LD) enumerator interviewing TNF investee.
Trust Network Finance
With the intention of exploring the potential for equity-based financing for microenterprises in Indonesia, Allianz Indonesia has embarked on a microequity pilot project near Jakarta called ‘Trust Network Finance’ (TNF). The program involves 4 phases:
A selection phase in which microentrepreneurs are provided with a small initial amount of interest-free financing for their informal business, which increases if they repay successfully and share some of their profits, i.e., if they show characteristics of ‘transformational’ entrepreneurship;
A mentorship phase where selected entrepreneurs are appropriately matched with mentors for personalized business development advice. Mentors are incentivized to invest their ‘sweat equity’, which will be formalized as a 10% ownership share in the enterprise at the third phase;
A formalization phase in which entrepreneurs undergo formal business registration, and TNF and the mentor take formal equity stakes in the business;
A graduation phase, in which TNF reduces its ownership stake, by selling to the owner or an external investor and using the sales proceeds to refinance the program.
As entrepreneurs graduate through the phases, they gain the right to recommend new entrepreneurs for the program and even become mentors themselves, building up the ‘trust network’.
LD enumerator interviewing TNF investee
Some preliminary evidence on this new approach
TNF has recruited approximately 150 clients since the pilot started in June, 2016, with the most advanced participants now having advanced to phase 2. In late 2017 we surveyed 80 clients, with the aim of learning about what kinds of people were joining TNF and what attracted them to join.
Clients tend to like TNF, seeing it as a unique product;
Client understanding of the later phases of TNF is relatively low on average, which likely reflects the relative complexity of this unfamiliar venture capital-like model, compared to conventional microcredit;
There seem to be two groups of clients in the pilot: (i) a (larger) group of less dynamic entrepreneurs, who mostly see TNF as a convenient way to get operational financing for their enterprise, and are more likely to leave the program during the selection phase, and (ii) a (smaller) group of more dynamic entrepreneurs, who are relatively more attracted by the opportunity to reach the mentorship stage;
Many clients in this majority-Muslim nation see the interest-free TNF product as complying with Islamic law, and this was a very important factor in them joining.
These early results are promising, and provide some guidance for TNF as it scales up. Perhaps the network of clients can be harnessed to better identify and target the transformational ‘diamonds in the rough’, who can use TNF to become successful generators of wealth and employment.
The research has been funded by the Department of Foreign Affairs and Trade (DFAT), Government of Australia, through a core grant to the Abdul Latif Jameel Poverty Action Lab Southeast Asia (J-PAL SEA). The views expressed in this publication are the authors’ alone and are not necessarily the views of the Australian Government, J-PAL SEA or other partner organizations. We thank our colleagues at J-PAL SEA, and the Demographic Institute at the University of Indonesia (LD UI), for their support in implementing the research. We thank the team of Trust Network Finance at Allianz Indonesia for their support on this research.
Muhammad Meki is a PhD candidate in Economics at the University of Oxford. He is interested in the effect of equity-like financial contracts on the investment and growth of microenterprises in developing countries.
Simon Quinn (@simonrquinn)is an Associate Professor of Economics and a Deputy Director of the Centre for the Study of African Economies at the University of Oxford. Simon’s research interests lie primarily in the study of firms and development.
Russell Toth (@russell_toth) is a Senior Lecturer (Assistant Professor) in the School of Economics at the University of Sydney. He is a development microeconomist, with primary research interests in the development of the private sector in developing and emerging market countries.
Closing the Gap – a series of Oxford University postgraduate student insights to the Skoll World Forum 2018
Hugh Courtney 2018 EMBA student at the Saïd Business School, reports on the Skoll World Forum session ‘Emerging Technologies: Shifting the Path from Poverty to Prosperity?’
Whilst Silicon Valley pundits are quick to espouse the benefits of a world transformed by the Fourth Industrial Revolution, many detractors worry about the impact that Automation and Artificial Intelligence (AI) will have on jobs, inequality and livelihoods. Whilst this debate centres on the developed world of the USA, EU and UK, are we considering the impact this will have on low and middle-income developing countries where the majority of the world’s population live? On a gloomy Thursday morning in Oxford, this was the question raised by Stefan Dercon (Professor of Economic Policy, Blavatnik School of Government).
Many of the benefits of Automation and AI are well known and frequently cited by their proponents. It will increase efficiency and throughput, allocating available resources more effectively and freeing humans up to think and be creative, removing the need for humans to perform repetitive tasks. What about opportunities for poor people? Terah Lyons (Executive Director, Partnership on AI) and Gargee Ghosh (Director, Development Policy and Finance, Bill & Melinda Gates Foundation) see healthcare and precision agriculture as possible early beneficiaries. Vaccines designed to stimulate the bodies own antibodies show promise in leading to a reduction in communicable diseases. In agriculture developing more resilient crops (such as green super rice), mapping regional soil composition and remote image mapping could generate significant benefits for yield, sustainability and planning for 75% of the world’s poor who are farmers. Ghosh is quick to point out however solutions need to contain a bundle of different technologies to be effective. She also notes that engaging with the correct end user of the solution is very important to avoid designing technologies what people are unlikely to adopt (one such example was an innovative seed planter which had to be redesigned because the it was too heavy for the end user, primarily women, because only men had been consulted in the early design stages).
Maryanna Iskander (CEO, Harambee Youth Employment Accelerator) has a counterintuitive view on job losses and job creation in Africa. Through her work in South Africa, which has the second highest youth unemployment rate in the world at 54.2%, she has found that young job seekers do not have an expectation of a linear career path, but rather they expect to “hustle”, which she asserts will enable them to adapt more easily to a changing world. In fact a country like South Africa may actually be less susceptible to job displacement than a developed country, an assertion supported by a report conducted by the World Bank which found that the automatable share of employment (adjusted for adoption time lag) was lower than the average for an OECD country (57.0%) at 47.9%. In an automated world, humans will naturally occupy positions where empathy and emotive abilities are required, which may mean less disruption of jobs in countries like South Africa, where STEM (science, technology, engineering, maths) jobs make up a small proportion of existing jobs.
Job seekers developing skills at Harambee Youth Accelerator. Picture Credit: Fred Swaniker (Facebook)
Creating solutions that are not exclusionary or ignorant of the needs of the poor is an important challenge to overcome. Lyons believes the onus is on technology companies to ensure this does not happen. Her organisation formed a board consisting of a balance of NPOs and private sector stakeholders. In addition, she points to engaging early with constituencies which may traditionally not have been represented or only engaged at a late stage. Given that regulation tends to lag innovation, Lyons asserts that the actors in technology need to hold each other to account, pointing to her previous findings whilst working for the Obama government that the private sector was spending on average eight times as much on research into AI than the government (as at 2016).
For Iskander ensuring solutions are not exclusionary is not only about regulation but also getting to grips with the realities and dispelling myths. Understanding the root of the problem is key and as Iskander points out, this is not always as simple as one might expect. Her organisation makes use of data in many cases to confirm what they already know. Despite the much-publicised penetration of mobile phones across Africa this does not always translate into usable information. In Iskander’s experience, people may have access to phones but are not as likely to have access to data (air time). Counterintuitively this increases the importance of using multiple channels to communicate including traditional print.
In closing Dercon pointed out that the session raised more questions than it answered. One aspect is however clear: the fourth industrial revolution will have a revolutionary impact on how we live, but path from poverty to prosperity will remain the responsibility of humans.
 World Bank, Unemployment, youth total (% of total labor force ages 15-24) (modeled ILO estimate). Unemployment, youth total (% of total labor force ages 15-24) (modeled ILO estimate) | Data. Available here [Accessed April 12, 2018].
 World Wide Web Foundation, 2017. A SMART WEB FOR A MORE EQUAL FUTURE. Webfoundation.org. Available here [Accessed April 12, 2018].
Aaron Bartnick is a 2017-18 Skoll Scholar on the Oxford MBA. Prior the MBA he led several ventures in US politics, and most recently helped develop the Iraqi Kurdistan Region’s first university-based start-up incubator.
Aaron Bartnick on a 2012 Obama campaign rally
What are we doing to make the world a bit better for others?
At first glance, it seems like a pretty uninspiring mission. In a world where everyone is out to “change the way we think about X,” “revolutionize Y,” and, above all, “make the world a better place,” who is going to get fired up about just making things a little bit better?
But it’s not our job to tell people what a good world looks like. And it’s not our responsibility to get them there. It is, however, the solemn responsibility of every public and private institution to give people the tools and opportunities they need to build that life for themselves.
That’s what originally attracted me to politics, and why I spent three years in Manassas, Virginia and Salem, Massachusetts when so many of my peers went to places like New York and San Francisco. In too many places at home and abroad, opportunity is concentrated in just a few places and available to an ever smaller number of people. And how far you go in life seems to depend more on where you’re born than what you can create out of circumstances beyond your control.
I’ve been lucky to work with and for a couple of incredible political leaders. But no individual is going to restore economic opportunity to the millions around the world who have seen it slip away in recent decades. We have to change the system.
Aaron Bartnick with former U.S. President, Barack Obama
Over the past two and a half years, I’ve been fortunate to work on some fascinating systems challenges. I’ve worked with governments around the United States to bring their processes into the digital age. I’ve observed entrepreneurial ecosystems in a dozen emerging markets across South America, Eastern Europe, and Southeast Asia. And in Iraq, I got to spend six months working with an international coalition of government, VC, and entrepreneurial leaders to propose much-needed economic reforms while helping the American University of Iraq build what we hope will be the Kurdistan Region’s first university-based start-up incubator.
Aaron Bartnick giving a presentation at the American University of Iraq
But this is far from enough.
If we are serious about expanding economic opportunity across the globe, we must harness the leverage of both business and government to enact changes that will flow from the highest and most complex systems down to the smallest local businesses. That’s why I’ve chosen to augment my political experience with an MBA, and why I’ve chosen to do it here at Oxford. Oxford Saïd is serious about business. I’m taking finance classes that would have made a younger me run for the hills, and am putting together presentations that will be viewed by some of the world’s preeminent business leaders. But Oxford Saïd is more than just a business school; it’s a school that talks every day about business in the service of a higher social good. And you can see that calling reflected in just about every one of the 330 peers with whom I am lucky to share this year.
Finally arriving at the University of Oxford
The MBA is a chance for me to hone the quantitative skills I will need to be successful in my career. It is a chance to explore some of the systemic challenges I’ve observed, like the massive financing gap between microfinance and private equity, through extracurricular activities like the Oxford Seed Fund and the Map the System competition. And it is a chance to broaden my perspective by taking advantage of the incredible multidisciplinary opportunities that only a place like Oxford can provide.
All of this is made possible by the Skoll Scholarship. I am humbled by the opportunity to explore some of the world’s biggest challenges in one of the world’s preeminent academic settings. I am excited to gain a better understanding of how we can build a more inclusive economic system that expands opportunity and helps make the world even a little bit better for others. And I am ready to get started.
Macarena Hernandez de Obeso, is a current Skoll Scholar and is dedicated to economic opportunity and prosperity for deprived communities in Latin America.
She shares the story of starting her new social enterprise that aims to bring together a global community, all the while studying her Oxford MBA!
In September of 2016 I started the most incredible journey of my life so far, an MBA at Oxford. At the beginning, I was sure that I was here to strengthen my business knowledge to be able to combine a sustainable business model with a social mission. However, I wasn’t sure which path I was going to achieve it in the future. I had in mind three options:
1. come back to the social enterprise where I was working before
2. join an international organisation or enterprise focusing on the design of tools and impact metrics to enhance the work of social entrepreneurs
3. start my own venture
Surprisingly, in less than two months, one of these became a reality.
Meeting my Co-Founder
During the first week of my MBA, I met Ana Maria. Being both born in Latin America and having dedicated part of our life to social impact, we realised that we shared a powerful goal; to create opportunities for people in Latin America by embracing their talents and helping them to reach their full potential. She had the idea to fund a charitable project offering Spanish language practice for foreigners through conversations with native speakers within the project’s community. I loved the idea, but not the business model; I thought it should be a social enterprise that could fund itself by creating access to economic opportunities and a flexible way of income for all Spanish native speakers in Latin America.
Launching our social enterprise
In November of 2016, we founded Language Amigo. Today, we are connecting, through video calls, language ’Learners’ who want to practice conversational Spanish, with native speaking ‘Amigos’ from Latin America. For Amigos, Language Amigo is a flexible way of income and for Learners, Language Amigo is a flexible way to practice.
Through Language Amigo, we are not offering Spanish teachers. We are offering to language learners the opportunity to put into practice their foreign language knowledge and have real world conversations with real and friendly people, Amigos. I believe that the main objective to learn a language is to be able to connect with people from another country, culture, and background. Through Language Amigo, you can do that.
Language Amigo’s first Learner-Amigo call
Language Amigo’s first Learner-Amigo call
I was very happy working on my new venture, but with every new path comes its challenges and scepticism. In February 2017, I was delivering a presentation about Language Amigo, to my communication skills’ group at the Oxford Language Centre. I explained that to generate income, Language Amigo keeps a percentage of the cost of the calls conducted between Amigos and Learners. The first question that I received after this presentation, from a Chilean student, was: “are you exploiting Latin American youngsters to create a business?” I couldn’t believe what I was hearing. I wasn’t sure what feeling this question had caused me. Anger? Deception? Surprise? Indignation? I realised that it is not obvious to everyone that a collaborative economy business model, such as Language Amigo, is creating economic inclusion for people who did not have an economic opportunity before. I was conscious that industries threatened by collaborative economy models, such as hospitality and logistics, have been raising critique against successful platforms and putting pressure into regulatory institutions. Nonetheless, the fact that an Oxford student from Latin American believes that we were exploiting our Amigos, completely shocked me.
But, we continue to grow
I believe that Language Amigo is creating value not only for Amigos but also for Learners. We are developing the means to create social and economic transactions between them. We are aggregating and connecting supply with demand that otherwise would never connect. We are constantly looking for potential customers to grow the economic opportunities for Amigos. We are constantly updating the Amigos’ training and generating support resources to improve the experience for the Learners.
Why is the value of creating a network and the means to include people into the economy undervalued? What is harder: to produce and deliver the product or service, or to find the market and attract it to generate demand for the product or service?
Currently, we are looking for institutions such as language centres, schools, universities, and enterprises that already have Spanish students to become our partners. We would like to be able to offer Language Amigo to their students and to co-create the best tool for them, their students, and the Amigos. Together we will be able to demonstrate that it is possible to create fair opportunities through the power of language.
Language Amigo Co-founders: Ana Maria (Left) Macarena (Right)
Forging Common Ground – Series of Oxford Student Insights to the Skoll World Forum 2017.
Oxford MBA Candidate 2016-17 at the Saïd Business School, Devin Rebello, gives her perspective on the Skoll World Forum session “Designing Sustainable, Inclusive Cities of the Future”.
The story of a broken city began as a fault line of inequity and exclusion ripped apart the urban centre of Medellin, Colombia. Faced with rapid urbanisation and population growth, the city was sent into extreme economic upheaval spurred by lack of jobs, failing infrastructure, and inadequate city services. The most disenfranchised and vulnerable populations fled into the mountains where they were soon preyed upon by drug cartels and caught in cycle of violence and extreme poverty that made Medellin the most dangerous city in the world. As Liz Agbor-Tabi, Associate Director of 100 Resilient Cities, tells it, Medellin was a city with a master plan. Local leaders had gone through the exercise and set a vision. Unfortunately, they had planned for the city they had, not for the city they would need. This story, though extreme, is all too familiar to those working to design sustainable, inclusive cities of the future.
As I sat in the room and listened to the tragic impact of failing systems and the hope for a better way forward, I was struck by the conflict between formal and informal communities and the role of government in creating their own problems. The outstanding, passionate panellists drove a resounding point home: there are social structures, laws, and physical spaces within growing cities that inherently expel people to the fringes. The more a city treats the marginalised like a problem, the larger the problem becomes. A city cannot ignore the pain and suffering of those existing in informal spaces, such as slums, nor can it take a wrecking ball to these informal communities and expect them to go away. The marginalised will not disappear by being ignored or physically threatened; instead, like in the example of Medellin, they will find ways to try to survive that can be devastating to formal structures.
The big question is, how do you change this? How can cities get out ahead and build something that will grow with a surging population? The overall sentiment in the room was that we need to break through silos and take a systems approach to building more inclusive cities. This starts by bring those living in informal spaces to the table and including them in the planning process. It starts when we demand governments change arbitrary laws that lock the marginalised into poverty by disallowing them from being entrepreneurial. It starts when we recognise that natural disasters disproportionately devastate the marginalised and fight to change systems that currently make them ineligible for aide. It starts when we design cities that focus on creating easy access to education, health care, and transportation for everyone. And it continues when we constantly remember that design is not neutral – it can help or it can hurt.
What is most inspiring is that this can be done. Looking back to Medellin as our example, it is an amazing story of a phoenix rising. Liz Agbor-Tabi told us that from the ashes of violence and extreme poverty, the city was able to turn things around by bringing marginalised citizens into the planning process along with NGOs, businesses, and civil society. Medellin built infrastructure to physically connect those living in the mountains to the main city allowing easy and safe passage between locations, which led to more employment and more spending that would boost the overall economy. They also put a deliberate emphasis on creating community spaces to rebuild the connectivity and trust between and among citizen. Medellin is now a rising hub of social entrepreneurship that has an intentional focus on poverty alleviation and inclusion.
This last thought is an interesting one – with the government taking the first steps to build an inclusive foundation to alleviate violence and poverty, local businesses are emerging that are determined to take care of the community. But does it really have to get that bad for businesses to take responsibility for the communities in which they work? Do we really have to rely exclusively on NGOs and social entrepreneurs to be the ones to take action to prevent another city from falling?
I think back to the opening plenary of the Forum when Hamdi Ulukaya, Founder and CEO of Chobani spoke about employing refugees within his factories well before the current refugee crisis hit. In the process of employing those in need of a job, he built critical foundations that enabled his employees to become thriving citizens. Hamdi learned that transportation was a challenge, so he provided buses. He learned that language was a barrier, so he provided translators. He learned that factory skills were lacking, so he provided training. And in doing all of this, he removed large numbers of refugees from the fringes and helped them integrate into the formal economy. This, in turn, supports the job markets and overall health of the cities in which his factories operate. We applaud Hamdi for his work because it is truly remarkable. But we cannot simply view Hamdi as a caring heart amongst stone-cold corporates. His actions made economic sense to his business and, even with the additional expenses of transportation, training, translators, and paying his staff twice as much as what his competitors were paying, he is still making a profit. Chobani is the example that we need to point to and demand that all businesses responsibly participate in the health and safety of their communities. This is critical to the design of sustainable, inclusive cities of the future. We cannot speak about an inclusive planning process for the future of our cities and give big businesses a pass from sitting at the table side by side with those most in need of employment.
Macarena Hernandez de Obeso is passionate about the economic opportunity for Mexico’s deprived communities. She is also our 2016-17 Skoll Scholar and Oxford MBA student. Her journey from Guadalajara started with a simple Skype call. Macarena shares the story.
Two years ago I had the luck to have a conversation by Skype with Pamela Hartigan. At that moment I had no idea this call will change my life to the point that today I’m writing this blog from Saïd Business School, at the University of Oxford, 5,605 miles away from the place I was born and raised, Guadalajara, Mexico.
Macerena joined Prospera in 2011, the first social enterprise in Guadalajara, Mexico.
One would think that it is almost impossible to build a social enterprise in a conservative region, in a country that has not been growing strongly for the past 30 years. But, in spite of all this I have not allowed the circumstances to define what I can or cannot achieve. To the point that in 2014, Prospera, the social enterprise I was leading, was recognised as one of the top 10 favourite social enterprises in Mexico, according to Forbes, and the best social enterprise in Mexico according to the Suzie Bank UBS.
Prospera became my passion. But, passion alone gets you nowhere.
My unconformity and the pursuit of challenge and intellectual growth led me to join the team of Gabriela Enrigue to build Prospera, the first social enterprise in Guadalajara. At that moment, I did not know anything about entrepreneurship or social enterprises. But a hunch and a desire to learn made me spend all my time building Prospera from the beginning. At Prospera, our mission is to serve single moms in poor communities who start small businesses from home. Our vision is to disrupt the entrenched male-dominated social structures that have been in place for the past 500 years in Mexico. We have trained more than 7,500 women and increased their incomes eight times. Prospera became my passion. But, passion alone gets you nowhere.
Generating opportunities for women is a profound reason that deserves my time and work. But if I fail to better combine the social mission with a sustainable business model, I will be designing solutions that nobody will pay for and the impact will never scale. I came to this awareness after I led a Prospera project as part of a Fund developed by Alsea Foundation and Starbucks Mexico. This project changed the way I see the world.
Alsea Foundation and Starbucks Mexico Project at Prospera [Photo source: Prospera]
The project’s goal was to add a productivity component to Alsea Foundation. It was the first project of this kind done in Latin America and we expected it to be scaled to six more countries. We trained 33 poor, single moms from one marginalised slum around Mexico City. They were recipients of philanthropic aid and the purpose of the project I designed was aimed at transforming them into small vendors at Starbucks. The women produced 3,300 customized notebooks that were then sold in 80 Starbucks. These women improved their income by 700%. Despite that the notebooks were sold to Starbucks consumers in less than a month, Starbucks only made this one purchase. Why? Neither the notebooks sales nor the productivity of these women were related the Starbucks core business model and the Foundation could not drive the corporate goals.
I decided to start looking for MBA programmes that would help me design business to solve the most challenging social problems that we face today.
As a result of this project I have been studying start-up business methodologies and working on the development of Prospera’s business model. I want to generate benefit for both the community and enterprises. If an enterprise increases income while solving social problems, they are willing to pay for this solution. That’s why two years ago I decided to start looking for MBA programmes that would help me design business to solve the most challenging social problems that we face today.
Talking with Pamela Hartigan not only helped me to understand how the Skoll Centre supports social entrepreneurs inside Saïd Business School, but she also made me believe that one day I could become an Oxford MBA student. The day has come I am grateful and ready for the challenge.