For entrepreneurs around the world, acquiring finance to start or expand a small business has become harder and harder as the global financial crisis has bitten hard. Across the globe, people with good ideas or successful businesses that need funds to expand are finding the door closed by traditional banks.
As banks and governments have focused on reducing debt and building up cash reserves, it is small businesses and small-scale entrepreneurs – often without business or family connections – who suffer the most. Opportunities are being missed to create new jobs and enterprises and lift poor communities out of poverty.
In that climate, the search is on for alternative ways to build up wealth. In Iran, a new phenomenon has arisen to address the lack of bank loans for small businesses brought about by the economic crisis. Iran is suffering under international sanctions as well as outstanding bank loans exceeding US $45 billion, according to the Financial Times.
The domestic banking crisis this has provoked has resulted in a tightening of credit for loans.
But in response, middle class Iranians are forming their own savings clubs to help each other with loans.
The savings clubs work like this: each member buys a share in the club costing around US $2 per day (around US $620 over 10 months). Each share makes the saver eligible for one loan during the year. For example in a club of 30 Tehran taxi drivers, every month four members of the club receive US $600 each in loans. The fund lasts 10 months and each member is guaranteed one loan per share.
“It is a savings fund and doesn’t have the uncertainty of the banking system, which might or might not give you a loan,” club member Ahmad told the Financial Times newspaper. As one of the drivers, he has four shares and is eligible for four loans.
“My mother is also saving money in a fund of housewives among our female relatives.”
The fund is managed by the head of the taxi agency and a driver who is a retired teacher. Both are trusted. “The retired teacher receives the money every day and puts a check mark by the names of those who pay. He is trusted by the head of the taxi agency, while other drivers respect him as an educated, honest man.”
Savings clubs are also good for the local economy, helping people to be able to buy goods on loans they would never be able to purchase otherwise. Another driver used the fund to “buy the things we cannot afford under normal conditions, like a washing machine, for instance, for which we have zero chance to get bank loans.”
Overdue loans by Iran’s banks grew by 66 percent from last year according to Asghar Abolhassani, the deputy economy minister.
The Financial Times reported that an estimated 25 percent of bank loans are outstanding, making Iran’s banking system technically bankrupt. International sanctions are also blocking the country’s banks from accessing global financial markets for support.
“Stagnation has gripped many parts of the economy,” said Hamid Tehranfar, the central bank’s director-general for banking supervision.
Turning to savings clubs can be an excellent alternative saving and loans model, but it requires very specific trust guarantees in place to ensure the holder of the funds doesn’t just take the money. For those who can’t find somebody local they trust, there are a number of online social lending and fundraising alternatives for raising funds and borrowing money. These include Kiva (www.kiva.org), which connects poor people looking for loans with people around the world willing to lend.
As the crisis continues and banks and governments hoard wealth for their own needs to pay down debt, alternative sources of loans will become ever more important for the poor.
Published: April 2010
Resources
1) Zopa: “Where people meet to lend and borrow money.” Website:www.zopa.com
2) Kiva: Kiva’s mission is to connect people, through lending, for the sake of alleviating poverty. Website: www.kiva.org
3) Betterplace: Started in 2007, Betterplace is an online marketplace for projects to raise funds. It is free, and it passes on 100 percent of the money raised on the platform to the projects. Website:www.betterplace.org
4) Kickstarter: Kickstarter is a funding platform for artists, designers, filmmakers, musicians, journalists, inventors, and explorers. Website:http://www.kickstarter.com/
Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.
Brazil’s booming economy has seen a dramatic increase in the size of its middle class. More and more people have been lifted out of poverty as a growing, stable economy overcomes years of political and economic instability. In 2010, Brazil’s economy grew by a record 7.5 percent, surpassing a previous peak in 1986 (Brazilian Institute of Geography and Statistics) (IBGE) (www.ibge.gov.br/english). The country’s gross domestic product (GDP) reached 3.67 trillion reais (US $2.21 trillion) in 2010, making it Latin America’s largest economy.
This strong growth is being fuelled by growing domestic demand in Brazil.
One key component in building personal wealth is the ability to save and bank. It is common across the global South for the poor and lower middle classes to be ignored by traditional banking services.
Freezing large numbers of people out of banking services is a double problem. Individuals are being denied a safe way to store and grow wealth and borrow to improve their economic situation, and the wider economy suffers because many millions are left out of the mainstream economy and can neither consume high-value products nor use services beyond those that meet the basic needs of daily survival.
This leaves many economies experiencing what can be described as a whirlpool effect: wealth spiralling around small clusters of people – for example those with privileged access to natural resources – but failing to spread across the whole of society. This has the effect of discounting the contribution made by the majority of a nation’s people. That majority is a market that needs tending to, not ignoring, as pioneers like the late C.K. Prahalad (http://en.wikipedia.org/wiki/C._K._Prahalad) have shown.
In Brazil, one major bank has woken up to this fact and is pioneering services for millions of the nation’s “unbanked” (http://en.wikipedia.org/wiki/Unbanked). Even wealthy countries like the United States have large numbers of unbanked people, often those living paycheck to paycheck and with little or no savings. In the US in 2009, 7.7 percent of the population fell into this category (Federal Deposit Insurance Corporation) (FDIC).
Banco Bradesco SA (www.bradesco.com.br) has pioneered reaching the poor and marginalised by opening branches in long-neglected places like the impoverished and crime-ridden shanty town favelas (http://en.wikipedia.org/wiki/Favela) that surround major cities like Rio de Janeiro and Sao Paulo. It is creating a path other businesses can follow.
“Every bank will care about these people eventually,” Odair Rebelato, the executive heading Bradesco’s retail banking outreach programme, told The Wall Street Journal.
According to FEBRABAN (http://www.febraban.org.br), the Brazilian Banking Federation, the number of bank accounts in the country has tripled in the past decade. It has surged from 42 million in 1997, to 126 million by the end of 2008. That still leaves around 50 million Brazilians who do not have bank accounts.
It’s not just poverty that cuts many Brazilians off from banking services – there is also the problem of isolation.
Brazil is home to the largest portion of the vast Amazon rainforest (http://en.wikipedia.org/wiki/Amazon_Rainforest), whose population is spread out in isolated villages reachable only by boat. The capital of Amazonas state, Manaus, is the economic hub of the region but transport links only connect it to major cities and not the region’s many isolated villages.
A solution to both problems comes in the form of Bradesco bank’s Voyager III, a three-deck riverboat converted into a floating bank. Launched in November 2010, the white-and-blue 38 metre riverboat ventures up the Solimões River on a journey to 50 isolated communities in 11 municipalities.
“It was something never seen before in the world – a floating branch,” Nézio Vieira, a Bradesco bank manager in São Paulo, told Monocle magazine. “We are now present in 100 per cent of Brazil’s municipalities.”
Luzia Moraes is a former housewife and now the manager of the Voyager III’s floating bank. The bank offers savings and checking accounts, personal loans and direct deposits. Most of the customers are public servants, pensioners and the poor.
It is a simple operation: a red banner is hung in a cramped former storeroom on the boat. Sitting behind a desk, Moraes has just three tools to offer the full banking services: a laptop computer, a printer and an automated teller machine.
Enterprising and adventures, Moraes even uses canoes and rafts to reach out from the riverboat to even remoter villages.
“Before, there were cases where people would take 10 to 12 hours by boat to get to a bank. It wasn’t worth it,” Vieira said. “To be able to serve these river-dwellers you need to go to them. Today the Voyager goes there.”
The Voyager III has signed up more than 1,000 new account holders by touring the river. It heads off every two weeks from Manaus, reaching as far as a remote town on the border with Colombia and Peru, Tabatinga.
The boat’s computers communicate with a satellite, allowing 24-hour access to the bank’s servers so people can access accounts and apply for loans.
A regional lifeblood, the Voyager III also carries 500 tons of beans, chicken, bleach and other goods to sell on the 1,609 kilometre river journey. The boat can carry around 200 passengers for the trip.
“People don’t know what to think,” Moraes told The Wall Street Journal, “but it’s not hard to explain that a bank can make things easier.”
Published: May 2011
Resources
1) Kenya’s Equity Bank: By offering Kenya’s poor people savings accounts and microloans, Equity Bank has captured 50 percent of the Kenyan bank market. Website:http://www.equitybank.co.ke
2) Safaricom M-PESA: Mobile phone banking in Kenya is proving highly successful. Customers can deposit, transfer and withdraw money using their mobile phones. Website:http://www.safaricom.co.ke/index.php?id=123
Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.
Food is essential for a good life and plays a critical part in overall human health and development. The better the quality of food available to the population, the better each individual’s overall health will be, and this will have a direct impact on mental and physical performance (http://www.sciencedirect.com/science/article/pii/S2213453012000055).
An innovative restaurant can be the beginning of a taste and flavors renaissance as new foods are discovered and the recipes and foods are cross-marketed. It is an effective strategy that has worked around the world. The restaurant’s brand, in turn, becomes a valuable commodity that can be used to promote a range of products. For example, Brazil’s D.O.M. Restaurante has successfully used its strong reputation to help promote a range of food products drawn from the Amazon rainforest. There is money to be made in this and it can be a major boost to the incomes of food producers, especially small-scale farmers.
As is being found across South America, a rediscovered love of local cuisines and indigenous culinary culture can also lead to profits and a growing global awareness of the continent’s varied foods and recipes.
Innovators are playing with traditional cooking and locally available foods to come up with a modern Latin American cuisine that is getting people very excited.
The latest country to benefit from this is Peru. The first Michelin star awarded to a Peruvian restaurant in Europe went to a restaurant in London, UK. The Michelin (http://travel.michelin.co.uk/michelin-guides-105-c.asp) star is awarded to a restaurant based on the quality of its food and its overall atmosphere and service.
The London restaurant Lima (limalondon.com) is part of the global rise in awareness of Latin American food. It was launched by Venezuelan brothers Gabriel and Jose Luis Gonzalez in partnership with Peruvian chef Virgilio Martinez. Their signature dishes include sea bream ceviche (a lime-preserved raw fish dish) and suckling pig done in the “Andes” style.
Martinez is also a chef consultant for the Central Restaurante (http://centralrestaurante.com.pe/es/) in Lima, Peru. It was named one of The World’s 50 Best Restaurants by S. Pellegrino (theworlds50best.com).
Gabriel Gonzalez moved to London from Paris two years ago, and is surprised at how quickly he and his colleagues have made an impact.
“It was definitely not expected. … It’s just incredible, it definitely sets a precedent for Peruvian food and gives it a stamp of credibility and a lot of promise, it’s just amazing,” he told the London Evening Standard.
As another mark of the rising profile of Latin American food, the first edition of Latin America’s 50 Best Restaurants was held in Lima in September 2013 (theworlds50best.com/latinamerica/en/). In its press release, it said: “The evolution and robustness of gastronomy in Latin America has demanded recognition.”
It comes after the first expansion of the awards to Asia with Asia’s 50 Best Restaurants, held in Singapore in February 2013.
The ceremony in Peru is being seen as another vote of confidence in Peru’s innovative restaurant scene. Other acknowledgements of the country’s culinary success include winning in 2012 the World’s Best Culinary Destination by the World Travel Awards. The Organization of American States (OAS) also declared Peru’s cuisine part of America’s World Heritage (oas.org).
The number of South American restaurants on the The World’s 50 Best Restaurants list increased to six in 2013, two more than in 2012. This year’s winners include the innovative Brazilian restaurant D.O.M in Sao Paulo, and Astrid y Gaston (http://astridygaston.com/en/) in Lima.
D.O.M. Restaurante’s (http://domrestaurante.com.br/pt-br/home.html) chef Alex Atala is a passionate champion of Brazil’s traditional ingredients and dishes. He trawls the Amazon rainforest for new taste sensations and then deploys them in his inventive dishes in the restaurant. D.O.M. was named the best restaurant in South America for four years in a row by The World’s 50 Best Restaurants.
At Astrid y Gaston in Lima, an innovative take on menus shows how the restaurant stands out from the rest. The restaurant uses storytelling techniques to build up interest in its various menus. One example is the Winter 2013 Tasting Menu with its title El Viaje, meaning trip or journey. “It is a story told through a long sequence of courses divided into five acts, a mise en scène where we attempt to take the life experiences of a restaurant beyond its traditional gastronomic limits,” the restaurant says on its website.
“During each of the five acts, the dishes, the music, the clothing, the decoration, the tableware and the book that accompanies this experience, will narrate the turning points that define this life journey”
Astrid y Gaston is a partnership between a German and a Peruvian who set out to challenge the dominance of French haute cuisine and started the restaurant in 1994.
“Twenty years later, much has happened with Peru and Peruvian cuisine. Unlike those times when inspiration was sought in foreign ingredients and recipes, when cooks locked themselves up in their kitchens and lived with suspicion of their peers, ignoring the farmers’ work and the social and ecological challenges of the environment, today’s cooking is fortunately getting a breath of fresh and beautiful air.”
Another cuisine pioneer is Pujol (pujol.com.mx) in Mexico City, Mexico. It serves Mexican cuisine focused on local ingredients blending ancient and modern culinary techniques. The food is original and exciting: for starters, there is baby corn and chicatana ant, aguachile with chia seeds and avocado, suckling lamb taco, and for desert, fermented plantain, macadamia nuts, plantain vinegar and chamomile flower petals.
The potential is enormous for marrying these restaurant innovators with the many small-scale farmers and food producers to boost awareness of their products and increase incomes across South and Central America.
Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.
African fashion brands have not always been the first place fashionistas turned to when shopping for new clothes or shoes in developed economies. While Africa has long been a source of inspiration in contemporary and traditional fashion, the continent has had a weak reputation for manufacturing and selling mass market global fashion brands.
There are initiatives, such as Origin Africa (http://originafrica.org/), an ongoing campaign working to improve African trade by increasing the trade of textiles and apparels, cut flowers, specialty foods, home décor, and fashion accessories. Origin Africa matches African designers and entrepreneurs with experienced industry leaders to “facilitate, coordinate and advance ‘trade, not aid’ efforts”.
While there are many places in Africa engaged in the global clothing manufacturing outsource industry – often paying very low wages – strong African fashion brands are often absent in most developed countries. Well, at least until now.
Two recent examples have joined the well-publicized success of Ethiopia’s soleRebels, maker of rubber-soled shoes (solerebelsfootwear.co). SoleRebels became an Internet success story, harnessing the power of web-based sales to reach customers around the world.
Now another Ethiopian shoe maker is also pushing its way into the global fashion scene. Ethiopian-made sneaker brand Sawa has just been picked up by the American retailer of preppy clothing J. Crew (jcrew.com). The successful catalogue and online clothing retailer has great clout when it comes to promoting a brand, and this should be a big boost to the reputation of African fashion labels.
Sawa’s headquarters is in Paris, France (the physical home of much of the world’s fashion scene) but all its shoes are sourced and made in Addis Ababa, Ethiopia’s capital, and the company’s website is run from there.
Sawa says the key to its success is to be a business first and foremost – not a charity.
“Sawa project does not have the so-called generosity of brands which use Africa just to glorify themselves,” said Wendesen Birhanu, on the company website.
“Sawa is a fashion brand which has taken the challenge to fabricate shoes in Africa. All the added value benefits the continent.”
The company’s shoe factory is modern and has the workers positioned at their desks making the shoes. The brand logo proudly states “Made in Africa” on all the brown cardboard shoe boxes in a bold, red roundel stamp.
Sawa also uses the slogan “vote with your feet” to show the connection between purchasing the shoes and supporting African business and manufacturing.
The footwear, currently available in the United Kingdom, France and through J. Crew in the United States, has a distinctive rubber sole with the African continent embossed on the bottom – a clever design tweak ensuring the wearers will leave an interesting footprint wherever they walk.
The styles available include Dr Bess, a vintage canvas and leather shoe in a low-cut silhouette. The Tsague is a vintage shoe with a mid cut like that used for basketball shoes.
They retail in Europe for between 75 euros and 115 euros a pair – a middle-market price – and come in eye-pleasing colours, from basic black to white to sand, dark blue, grey, brown, red and light blue.
Small and medium enterprises (SMEs) (http://en.wikipedia.org/wiki/Small_and_medium_enterprises) have been identified as an essential part of Africa’s future prosperity and key to its ability to reduce poverty and achieve development objectives like the Millennium Development Goals (MDGs) (www.un.org/millenniumgoals).
Obstacles to growth for SMEs include poor infrastructure, unreliable power supplies, unscaleable business models, low quality standards and poor quality branding and design.
Developing manufacturing in Africa is key to improving incomes and wealth. Creating unique, branded products for overseas markets makes it possible to earn foreign currency and be able to benefit from consumers in other countries. The math is simple: once you have saturated the local market for your product, the only way to boost sales and profits is to seek new customers elsewhere. By selling to people in a country with a higher national income, it is possible to charge more and in turn earn more money for each product. In time, this can lead to significant income rises and in turn, human development gains as the spare cash can be put to improving local living conditions, acquiring education or better health services and consuming better quality food.
Another important feature of selling to overseas customers is competition. Having to compete with the pick of the world’s top brands means a company must raise its game to stand a chance. The pressure forces the company to sharpen its product line, become more efficient, stick to strict quality control and embrace the latest thinking in design, marketing and information technologies.
In short, an African company that can weather a few years successfully selling to overseas customers is going to be a fierce competitor back home.
And, as has been forecast many times, the rise of Africa’s middle class consumers will be a big driver of economic growth in the next decade. If this middle-income consumer class buys lots of African-made consumer products, then the impact on job and wealth creation on the continent will be significant.
Another fashion initiative boosting brand Africa is a partnership between Italian fashion lifestyle clothing retailer Diesel (diesel.com) and the Edun ethical fashion label (edun.com), founded by Ali Hewson and her husband Bono, singer with rock band U2.
The collaboration offers a contemporary take on retro street wear from Africa’s past, while having all the garments made and sourced from Africa.
In March 2013, Diesel+EDUN launched a 25-piece denim collection drawing its inspiration from African creativity. The collection uses raw, untreated denim sourced and manufactured in Uganda. It mixes up Malian textile prints for linings, with outside embroidery drawing on traditional Zulu weaving patterns. It also includes a denim jacket inspired by street wear from 1970s South Africa.
Edun was originally set up to encourage greater trade with Africa as a way to address poverty and boost incomes. Begun in 2005, the brand has tried to overturn the perception that ethical and ecologically sound fashion can’t be fashionable and desirable too.
Edun has sought to be “a creative force in contemporary fashion”, according to its website. In 2007, it launched a line dedicated to making t-shirts entirely made in Africa called Edun Live. Edun Live t-shirts “are entirely ‘Grow to Sew’ African. From cotton to finished tee, all production takes place in Africa.”
Edun has the goal of producing 40 per cent of its fashion collection in Africa by 2013. It does this by “supporting manufacturers, infrastructure and community building initiatives”.
All of Edun’s cotton is harvested to CCIU cotton standards. The Conservation Cotton Initiative Uganda (CCIU) is a cotton-farming program that helps to build sustainable farming communities in Northern Uganda.
Edun is currently working in Kenya, Morocco, Madagascar, Uganda and Tunisia.
The Diesel+EDUN (http://www.diesel.com/diesel+edun/) collaboration had its start at the beginning of 2012. After trips to East and West Africa by Diesel founder Renzo Rosso and Edun founders Ali Hewson and Bono, the idea was hatched to work together to “further apparel trade and development in Africa”. The goal is “bringing business to the continent and highlighting to the fashion world the possibility for sustainable trade and creative opportunity in Africa.”
More than 5,000 farmers participated in the 2011/2012 CCIU program, and more than 8,000 have already enrolled in the 2012/2013 season, the website states.
Edun is also working with Mikono Knits (Mikonoknits.com) to promote traditional African knitting techniques. Founded in 2005 by Froydis Dybahl Archer, Mikono makes and sells hand-crocheted sweaters and tank tops from its Nairobi, Kenya workshop. The plan is to use the success of Mikono Knits to expand the number of underprivileged women the firm can hire to work for the business. The business currently employs 10 women and uses locally sourced organic cotton and wool, supporting the local economy.
Beyond the actual clothing partnership and African-inspired fashion, there is a clever promotion campaign to raise awareness for the Diesel+EDUN line. Called Studio Africa (http://studioafrica.tumblr.com/), it is a marketing and perception-shaping initiative, “celebrating and promoting creativity in Africa”. It is doing this by promoting nine African artists to better communicate the African vibe of the collection and give the artists’ careers a boost. It is curated and edited by Okay Africa (http://www.okayafrica.com/), a cultural guide to “all the latest music/culture/politics coming from Africa and the Diaspora”.
Published: March 2013
Resources
1) Africa Fashion International: African Fashion International (AFI) is the leading Fashion authority on the African continent and is committed to the promotion and development of the best South African design talent. Website:http://afi.za.com/
2) Origin Africa: Origin Africa is an ongoing campaign and initiative dedicated to improving African trade. Comprised of producers, designers, small businesses, exporters, buyers and retailers, it is working to develop, guide and promote African trade in the following sectors: textiles/apparel, cut flowers, specialty foods, home décor, and fashion accessories. Website:http://originafrica.org/
4) How we made it in Africa: A great website packed with inspirational people and stories on business success in Africa. Website:http://www.howwemadeitinafrica.com/
5) Nigerian shoe and garment maker Fut Conceptus has been taking raw Nigerian leather that was once just sent overseas for export, and instead is turning out high-quality shoes and bags made in Nigerian factories. Website: futconceptus.com
6) SME Toolkit South Africa: A website packed with resources and support for anyone starting a small business in Africa. Website:http://southafrica.smetoolkit.org/sa/en
8) Small and Medium Enterprise Support, East Africa: A blog promoting events and support for SMEs in East Africa. Website:http://smeseastafrica.blogspot.com/
Development Challenges, South-South Solutions was launched as an e-newsletter in 2006 by UNDP’s South-South Cooperation Unit (now the United Nations Office for South-South Cooperation) based in New York, USA. It led on profiling the rise of the global South as an economic powerhouse and was one of the first regular publications to champion the global South’s innovators, entrepreneurs, and pioneers. It tracked the key trends that are now so profoundly reshaping how development is seen and done. This includes the rapid take-up of mobile phones and information technology in the global South (as profiled in the first issue of magazine Southern Innovator), the move to becoming a majority urban world, a growing global innovator culture, and the plethora of solutions being developed in the global South to tackle its problems and improve living conditions and boost human development. The success of the e-newsletter led to the launch of the magazine Southern Innovator.
David South Consulting 
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