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Posts Tagged ‘Muhammad Yunus’

If you missed the discussion going on at Mike’s post on vouchers and making a profitable school, then I encourage you to check it out.  Part of that discussion made this article at the WSJ stand out even more to me.  Danone, or Dannon as it’s known in the states, is very active in selling yogurt and water to the poor in Africa.  But this is not philanthropy…it is business:

Mr. Riboud began to see he was missing out on the huge untapped market of products for the poor. In 2004 in Indonesia, Danone’s local managers presented Mr. Riboud with a pyramid diagram showing that out of the country’s population of 240 million, just the 20 million at the tip of the pyramid could afford Danone’s food.

So he decided to develop a cheap, on-the-go drinkable yogurt for poor consumers and children. “Why shouldn’t I be doing business with them, too?” Mr. Riboud recalls thinking.

The first such yogurt debuted in Indonesia at the end of 2004, selling at 10 cents for a 70-gram plastic bottle. The yogurt was an instant hit with lower-income consumers and children in particular, selling 10 million bottles in its first three months on the market. It is still one of Danone’s most popular products in Indonesia, where the average per-capita income is about $11 a day.

Two-and-a-half years later, Danone teamed up with Muhammad Yunus, the Bangladeshi who later won the Nobel Peace Prize for his microcredit program that lends money to poor entrepreneurs. Mr. Riboud and Mr. Yunus, having met over lunch, set up a joint venture called Grameen Danone Foods Ltd.

The idea was to sell an affordable seven-cent yogurt product called Shokti Doi—which means “strong yogurt.” Fortified with vitamins and minerals, it was to be sold through local women who would peddle it door to door on commission.

For the 54-year old Danone boss, who eschews ties and gets around by scooter, the Shokti Doi initiative was something of a personal mission. His father Antoine, who preceded him as chief executive, had instilled in him an interest in ventures that had a chance to both make money and give a lift to the poor—the “double project”, as he called it.

Within a year, though, Grameen Danone hit a wall: Milk prices soared, factory openings were delayed, and the saleswomen couldn’t earn a living selling yogurt alone. Today, a significant portion of sales of Shokti Doi come from urban stores, not rural villages as planned.

Danone stresses that none of its low-income consumer efforts are charity. “Danone is not an NGO,” Mr. Riboud says. “Learning to make a nutritious product that can be sold for eight cents without a loss helps us when we put in place a volume strategy, even in mature markets.” [emphasis added]

I think this last line is key.  Not only are they seeking a profit, but foresee that the efficiencies they learn in trying to reach such a poor market will ultimately help them in the more affluent markets.  Certainly Danone may not be indicative of all business… but it does represent the ability for private enterprise to make a profit, and reach the needy.

Danone says its emerging-market bottled-water business is already more lucrative than its water operations in developed markets, which includes the pricey Evian brand. The company strives for “satisfactory and durable profits, but not to maximize profits,” says Danone deputy general manager Emmanuel Faber.

Maybe some forward thinking companies like Danone would be the ones to spring up if education reform allowed competition through vouchers?  The article, as quoted above, mentions Muhammad Yunus – who I wrote about in this post a year ago.  It’s people like these that can re-frame the vision society has of the free market and capitalism.

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yunusMicrofinance or microcredit is a pretty cool banking fad that has been growing in Asia and parts of Europe for a while now, going back to the early 80’s.  It has caught on much more after the “founder” of the concept Muhammad Yunus won the Nobel Peace Prize in 2006.  He started Grameen Bank in India and started doling out small loans (around $100 many times) for the poorest of the poor to invest in some money making venture, whether it was to buy material in order to make clothing, or to fund purchases needed for a small store.  His intention was not to create a non-profit, or NGO… but he is also clear that he was not out to make a huge profit either.  The intent was to help the poor get themselves out of poverty.  According to Yunus though, this trait is not shared by all the banks joining the microfinance world:

If you look at agricultural banks, for example, most of the agricultural banks around the world require collateral…. Similarly, savings and loan associations say they do microcredit. Cooperatives say they do microcredit. Those who are giving agricultural loans — commercial banks — are saying they do microcredit. So we need to clarify what microcredit is in its pure form rather than everything else. Microcredit was always given to people for income generating activity. So whatever money you are taking, you are investing it to create an income source for yourself. There are many programs which give loans for buying consumer goods, and they say they are doing microcredit, they are giving money to buy a refrigerator or buy a television. We say, “No, sorry, that’s not microcredit.” So we have to sort this out.

Another aspect that I want to draw attention to — there are many microcredit programs going around advertising themselves saying, “Oh, this is a great opportunity to make money.” And they encourage people who want to make money to join in and do that. Again, we say, “Look, our purpose is not to excite people about making money. Our purpose is to help people get out of poverty. The focus is not on profit making. The focus is on helping people to get out of poverty. Those who are seeing this as an opportunity to make money have to raise their interest rate to the extent that they make a lot of money. The interest rate issue becomes a sensitive one. We are saying interest rates should be kept as low as possible, preferably to cover costs. If you want to make a little profit on top of it, it should be a very modest profit, so that it doesn’t look like this was your intention. Those who are doing that — using microcredit, microfinance, to make a lot of money — we keep saying that this is not microcredit in the sense that we do it. We came here to fight the loan sharks, not become loan sharks ourselves. This is their moving into the direction of loan sharks. We want to disassociate ourselves from them.

He initially tried to act as a mediator between banks and the poor, but the banks felt the credit risk was too high.  So instead Yunus formed his own bank in order to be able to give out loans as he felt.  How did the credit-worthiness problem work out?  Well he has a repayment rate of 99%, and this is out of 8 million customers.  I’d say that’s not bad.  It’s a unique intersection of social concern and market economics.  Check out the video if you have time.  Yunus has some views on globalization that I don’t necessarily agree with, but he certainly is coming from a perspective that I have not experienced so it’s good to hear his thoughts.

Vodpod videos no longer available.

The Economist also has a good short article about how the microfinance world is doing during the economic crisis.  Some are struggling, but Yunus’s group seems to be doing well.

FYI – the post title is meant to be read to the tune of “It’s All About the Benjamins” by P-Diddy (at least that’s how it was in my head).

(by way of Knowledge@Wharton)

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