PSD Blog - World Bank Group

Sustainable banking awards: who's winning what?

The Financial Times and IFC announced shortlists of potential winners for the 2008 Sustainable Banking Awards. The awards recognize financial institutions that have led the way in integating their policies with social, environmental, and corporate governance objectives. Below is a sample the categories and the shortlisted candidates, the full list is available here.

Sustainable Bank of the Year

• Banco Real, Brazil
• Citi, US
• HSBC, UK
• Rabobank, Netherlands
• Standard Chartered, UK

Sustainable Deal of the Year

• BlueOrchard Finance, Switzerland/Morgan Stanley, US (microfinance loans)
• Calyon, France (solar thermal power plants)
• Citi, US (financing for rural housing)
• Glitnir Bank, Iceland (geothermal power generation)
• Merrill Lynch, US (carbon finance to reduce deforestation)

Banking at the Bottom of the Pyramid

• ASA, Bangladesh
• Banco Bradesco, Brazil
• ICICI Group, India
• Opportunity International, UK
• Wizzit, South Africa

More mobile banking, this time in the US. So what?

Word today that Western Union, the global money transfer service, is increasing its profile in the United States when it comes to selling new ways to send and receive money. This is just the latest in a series of steps Western Union has taken to get more involved in mobile services, which have grown exponentially in places like the Philippines and Kenya but have been less quick to catch on in markets where banking services are well-developed, such as the United States. The service will initially seek to reach Latino immigrants who are among the 40 million people in the US who lack access to basic banking services. How will it work? The Wall Street Journal explains:

To use the service, people go to one of RadioShack's more than 4,000 stores and sign up for a Trumpet prepaid phone, which is required under the program. Customers can then load up to $200 onto their phones for cash transfer via Western Union's network either within the U.S. or internationally.

Does tax registration increase profits?

A large number of firms in developing countries operate in the informal sector. It is often argued that informality lowers profits and growth, but is this true? A recent paper on Bolivia finds that formality leads indeed to higher profit - on average. However, distinguishing between firms of different sizes shows that it is only mid-sized firms that stand to benefit from formality, whereas both smaller and larger firms suffer.

Which one to blame: caipirinhas or red tape?

"If Bill Gates had started Microsoft in a garage in Brazil, it would still be in the garage," says Eduardo Giannetti da Fonseca in a recent article published by The Economist. The article points to the fact that Brazilian entrepreneurs are more risk-averse than the ones in Russia and China.

That's a no-brainer, for instance, according to the Doing Business 2008 (and for full disclosure, the authors are just down the hall from me) it takes an astonishing amount of effort to start a new business in Brazil: 152 days and 18 different procedures. Thus, absolving caipirinhas, soccer, or other Brazilian passions from any culpability. Whew!

Cuba's leader Fidel Castro resigns

After 49 years as a head-of-state, Fidel Castro has announced today he is officially stepping down as Cuba's president. Given that Castro has been resistant to business-friendly reforms, his resignation gives some commentators the hope that his likely successor, Raul Castro, will bring about some much needed reforms. There is particular hope in giving farmers more independence and engaging more with neighboring economies besides Venezuela.

The business of carnival

Rio de Janeiro is the home of Brazil's best 14 samba schools, some with individual budgets of up to $2.5 million.  As the floats get bigger and bigger requiring the work of more and more artists, Rio's Department of Labor recognized the business potential of the famous street party. 

Nassim Mehedff, the subsecretary of the Labor Department, explains why the city began providing free classes that teach people how to make costumes:

Now [the carnival] is becoming an industry, entertainment industry. They provide jobs and income for people during the whole year, not only a kind of two or three day festivity

Doing Business across Colombia

Based on surveys from Bogotá, Colombia took a 66th position out of 178 in the Doing Business 2008 report and became this year's top reformer. But as the subnational report (en español) released today shows, there are vast discrepancies on the ease of doing business among the county's 12 main cities.

Municipal requirements make up 7 of the 19 procedures required to start a business in Neiva, but only 1 of 13 in Villavicencio—the city with the fewest start-up procedures.

The graph below shows the time required to enforce contracts across 12 Colombian cities:

Financial liberalization can make your economy more resilient if...

A new paper compares changes in financing by international banks to domestic banks after the 1998 Russian debt crisis. The author finds that financing increased to banks with international equity holders when compared with their purely domestic counterparts.

Financial liberalization can make you more resilient to global credit shocks, but only if you invite foreigners rather than just borrow their money.

Unusual champions of global sustainability

It is often assumed that the greatest potential for improving business environmental practice in developing countries lies with foreign multinationals and not with the countries' own businesses.

These case studies reject this common assumption and point to the crucial role of developing-country firms as they serve the world's most populous and fastest growing markets

Says Simone Pulver the guest editor of "Greening Development: The Role of the Developing-Country Private Sector" published in the "Studies in Comparative International Development" [subscription required]. The recent issue is based on case studies of selected firms in China, India and Latin America.

Foreign bank entry and outreach

What is the impact of foreign bank entry on banking sector outreach? A recent paper on the Mexican experience shows contrasting patterns: the number of municipalities with bank presence increased, but the number of loan and deposit accounts decreased.

While only rich and urban areas benefited from more bank presence, the decline in loan and deposit accounts was more pronounced in rural and poorer areas.

Reaction to pre-crisis inefficiencies? A deliberate strategy of foreign banks to focus on the upper end of the market? Or a response to demand or regulatory changes?

Is Peru on its way up?

The center of Lima, notoriously crime-ridden and dirty, has become safe and attractive. […] Consumer goods and services—cell phones, household appliances, and private education, for example—previously unavailable or in short supply have proliferated and serve all markets, rich and poor.

[…] The quality of service and attention to detail seems to have improved among Peruvian workers and management across a broad array of businesses. Peruvian writer Mario Vargas Llosa recently noted that he was now much more hopeful about Peru, not because of Peru's positive economic indicators, but rather because 'something profound seems to have changed in the culture of the country. One would have to be blind not to see that.'

That's from Ian Vásquez at the Cato Institute. The Doing Business report ranked Peru 58 in the world and 7 in the region on the ease of doing business. The Enterprise Surveys has a snapshot of Peru's business environment, including the number of power and water outages in a typical month: 1.14 and 0.73, respectively.

World's largest untapped consumer segment

With a monthly income varing from $63 and $700, many of them use "branded shampoos and detergents regularly, and they sometimes indulge in a bar of chocolate or bottle of perfume.  A good number own televisions, refrigerators, and DVD players." 

Known as the "next billion," these consumers - who spend over $1 trillion a year - can't "afford to make mistakes" and will "carefully compare [products] functional, technical, and emotional benefits."

BCG has five tips for companies on how to reach this group:

One way of fighting corruption

In 2003, the Brazilian government began to randomly audit municipalities regarding their use of federal funds and made the results public. A recent study compares municipalities audited before the 2004 municipal elections with those audited after the elections.

The authors find that municipalities audited after the elections have the same reelection rate for incumbents, regardless of the number of violations found. However, the municipalities audited before the elections have a much lower reelection rate when the incumbent was found to have more than one violation.

Public dissemination of the violations seems to be critical. The differences in reelection rates are only present in municipalities that have a local radio station.

Microloans get bad credit

According to David Satterthwaite, the editor of MicroCapital Monitor, in South Asia alone microlenders have reached so far only about 2 percent of potential customers. As needs and opportunities for access to finance continue to grow, so does the debate on the social and commercial aspects of microlending.

Most recently on the "con" side BusinessWeek has published a special on the problems that some poor borrowers in Mexico encounter.

The FT and Nextbillion have the other side of the story.

Emerging markets' top challengers

In a new study the Boston Consulting Group warns established industry leaders against the competition from emerging markets. Since 2004 the 100 New Global Challengers grew their revenues three times faster than the S&P 500 and now, says David Michael, the report's co-author, they will become potential acquirers:

Never before have so many potential competitors and customers arisen so quickly on a global scale. Moreover, the challengers have completely different approaches to competition, taking advantage of their bases in emerging markets. Many established industry leaders are frankly unprepared for these new types of competitors

The challengers brought over $1.2 trillion in total revenues in 2006. The report predicts that their combined revenues will reach $3.3 trillion by 2010 and $11.8 trillion by 2015.

Private sector in Latin America

Former heads of state from Mexico, Peru, and Spain, along with international business leaders, will discuss the role that private sector plays in adding to the competitiveness of the region.

The event will take place on November 27, 2007 in Washington, DC at Georgetown University. RSVP is required.

Bad news for the poorest of the poor

The authors of a new report at the International Food Policy Research Institute estimate that the world will reach the first MDG (halving the proportion of people living on less than $1 a day and suffering from hunger) by 2015. The bad news is that the ultrapoor – those surviving on less than $0.54 a day - are the most likely to remain among at least 800 million people still in poverty by 2015.

The report points to the three main poverty traps: inability to invest in education; limited access to credit for those with few assets; and reduced productivity due to malnutrition. 

Three-quarters out of 162 million untrapoor today live in Sub-Saharan Africa.

MDGs: a new picture

With the countdown half-way through, the data on the Millennium Development Goals are finally available via interactive maps. The timeline feature (step 3 on the map) tracks progress on any of the eight goals, throughout 189 countries.

Launch of World Bank competitor postponed

Business News Americas, a subscription-based news service, reports that the launch of Banco del Sur – a new development bank for South America – will be delayed for another month.

The inauguration, which had been rescheduled for tomorrow from the original June 2007 date, will now take place on December 5.

Some folks at the Inter-American Development Bank, its closest rival, think Banco del Sur might go… south.

Profitable microfinance and its spillovers

What has very low default rates, relatively high administrative costs and high interest rates? The answer is: microfinance loans.

Despite the unfavorable expense ratios relative to commercial banks – the cost of lending one dollar is below four cents for a traditional bank compared with at least 10, and in some cases over 20 cents, for microlenders - microfinance institutions (MFIs) are beginning to attract serious money.

Though not without its critics, the recent success stories strengthened the credibility of microfinance as an "investment grade" asset class in commercial capital markets. Capital from a growing number of private equity, hedge funds and big banks, including ICICI, ABN Amro and Citibank, has been helping supplement limited funding from donors and foundations.

More investment has already expanded the industry. Maria Otero, the president of ACCION International – an investor and lender to MFIs said that "it took 20 years to win [the] first million clients, but only three years to obtain [a] second million."

Best targets for bribe-seekers

Two out of five firms in Africa and Latin America report having to make unofficial payments to "get things done." One in six is expected to present "a gift" when meeting with tax inspectors. The "Graft Index of Firm Transactions" (below) shows that African firms are three times more likely to be asked for money than their Latin American counterparts.

The index relies on hard data from 10,000 firms and their encounters with corruption in 33 countries. Authors Alvaro González, Ernesto López-Córdova and Elio Valladares found that firms in Africa pay higher bribes, as a percent of sales, than firms Latin America: 2.7 and 1.4 percent, respectively.

View their new paper with a recipe on how to reduce corruption in Africa by 85 percent here.  And don't forget to do your own analysis.

Muhammad Yunus challenges Compartamos bank

Is it ok to make a big profit from lending to the poor? Where does microcredit end and loan sharking begin?

Carlos Danel and Carlos Labarthe, the CEOs of Compartamos, a nonprofit-cum-commercial bank which charges an annual interest rate of nearly 100 percent, believe that only the lure of profits will motivate people to lend to the poor. Today Compartamos reaches 700,000 borrowers and 88 percent of its clients come back for more loans.  In 2006, it was rated as Mexico's most profitable bank.

Muhammad Yunus, the Nobel laureate who pioneered the movement three decades ago and has made loans to some 7 million borrowers in Bangladesh, disagrees. Poor people's willingness to pay high interest is not a justification for charging it, he says.  Compartamos is not microcredit, it's "raking in money off poor people desperate for cash."

What do you think? The comments are open. The entire program is available here.

Reform yourself and the equity returns will follow

How did Eastern Europe overtake East Asia? In a four-minute video interview, Michael Klein, World Bank-IFC Vice President for Financial and Private Sector Development, explains why countries that didn't make it to the top of the Doing Business 2008 report don't have to despair.

By the way, did you know that Estonia and Poland have as many registered businesses per capital as Hong Kong? The same holds for Georgia and Malaysia.

Doing Business 2008 report is out now

At 00:01 GMT, the World Bank released its annual ranking of the ease of doing business in 178 economies.

Ordered by the time and cost required to set, run and close a business, Eastern Europe and Central Asia were the fastest reforming region this year. Latin America and East Asia were the slowest, with the exception of China, who implemented new private property rights and a new bankruptcy law.

Business climate rankings matter to women. Higher scores correspond to a higher number of women entrepreneurs and employees in an economy. Forty-one percent of women in Rwanda run a small business but only 18 in the Democratic Republic of Congo, where women need their husbands' consent to start a business.

Interestingly, though Brunei, Liberia and Luxemburg joined the list, nothing has changed on the very top or the bottom. As in the year before, Singapore ranks the first and the Democratic Republic of Congo as the last of the list. Egypt became the top reformer but Georgia, with its provocative media campaign, still holds a high spot. And while almost all countries, including Belarus, registered some positive reforms, Venezuela and Zimbabwe bucked the trend.

For complete listings and to create your own rankings visit the Doing Business site.

World Bank's Internal Evaluation Report is out now

Since the mid-1990s, 86 middle-income countries (MICs), defined as having GDP per capital ranging from $1000 to $6000, have borrowed the total of $163 billion and their average real incomes grew by 4 percent a year. Given their new wealth should the bank continue lending to them or focus exclusively on low-income countries?

The Internal Evaluation Group's new report evaluates the effectiveness of bank's programs to MICs from 1995 to 2006 and recommends the way forward. The two key recommendations are: continue lending but depart from business as usual.

See also what The Economist wrote about the group of countries that despite the impressive growth are still home to over one-third of the world's poor.

Vaccines not immune from markets

The disinterest in vaccine development throughout the 1990s led many to call for government intervention.

But things seem to be changing. Since the beginning of 2007 alone, Merck, a major pharmaceutical maker, earned $2 billion on vaccines - a figure that prodded a long-awaited uptick in research outlays in the industry. Though research traditionally has been biased toward servicing of western maladies, companies are beginning to recognize the profit potential at the bottom of the pyramid. "The size of the market is incredible, both in America and around the world" says Adel Mahmoud, a former president of Merck's vaccines unit.

While individual spending on health care is low – only $183 a year for a typical rural household in Uganda, the measured BOP health market in 35 countries in Africa, Asia, Eastern Europe, Latin American and the Caribbean represents 2.1 billion people who annually spend $87.7 billion.

Though it may be too early to talk about research fever, it is starting to look like a rush.

Remit your way to a mortgage

FT reports on the progress of initiatives, such as cross-boarder mortgages, to incorporate remittances into the mainstream financial system, where money transfers can be used more effectively for local investment.

For a global picture see the migration and remittances factbook.

FDI in 2011

The Economist Intelligence Unit together with the Columbia Program on International Investment released the World Investment Prospects to 2011 which forecasts FDI flows for 82 countries over the next five years. Eight out of top twenty recipient countries will be in emerging-markets.

The report focuses on political risk, and Jeffrey Sachs analyzes ways to address growing risks in the energy sector.

The graph shows predicted inflows to Asia + China:

Improving aid: consensus or competition?

The aid community has undergone sweeping changes since the 1960s when the number of donors per recipient country averaged at 12. Today this figure is 33 and the number of organizations exceeds 230.

The multitude of donor-driven initiatives spurred efforts to streamline aid, such as Poverty Reduction Strategies (PRS), but with little success. Most middle-income countries, home to 80 percent of the developing world's population, opted out of PRS and new emerging donors China and India, with $2 and $1 billion contributions respectively, change the nature of global aid.

It's now easier than ever to borrow from capital markets – 90 percent of the world's developing countries accessed the syndicated loan market and 40 percent issued sovereign bonds. As a result, the World Bank revised its lending policies cutting fees and raising lending limits striving to compete with other development banks.

For the "road ahead" read a very good short study by Joseph O'Keefe, the former head of corporate relations at IFC, and now a scholar at Brookings.

Protectionism for development

Economic development requires tariffs, regulation of foreign investment, permissive intellectual property laws, and other policies that help […] producers accumulate productive capabilities

Says Ha-Joon Chang, a Cambridge economist and the author of "Bad Samaritans: Rich Nations, Poor Policies and the Threat to the Developing World." He argues that rich countries should not deny the poor ones the very same route they had once themselves taken to develop.

[The] truth of the matter is that [developing] countries have grown significantly more slowly in the "brave new world" of new-liberal policies, compared with the "bad old days" of protectionism and regulation in the 1960s and the 1970s.

P&G finds fortune at the bottom of the pyramid

Unlike in the U.S. market where large stores dominate, individual retailers in small kiosks and stalls, which shoppers visit several times throughout a day, prevail in developing markets.

These high-frequency stores, as Procter & Gamble calls them, according to a Wall Street Journal article [subscription required] are the company's largest customer, with Wal-Mart coming in second, accounting for $20 billion in sales.

P&G estimates that only 2.5 million out of 20 million high-frequency stores sell their products:

Mexico has 620,000 high-frequency stores. In most villages and cities there is one approximately every one-and-a-half blocks. Though the average shopper spends just 23 pesos, or $2.14, a day in high-frequency stores, annual sales total about $16 billion.

P&G created its own business strategy for the BOP market:

Little book, lots of data

Whether it's a county's GDP, its total tax rate or the cost of a three-minute telephone call to U.S. – this pocket-sized reference book has it all.

It's a must have for all development wonks.

The 4-speed world by James Wolfensohn

The former World Bank president calls for an increase of poverty eradication efforts to countries in Latin America and the Middle East, which, despite housing a fifth of the world's population, are "not poor enough" nor "sufficiently large and fast-growing" to sustain the attention of G-8 leaders.

First Global Peace Index - the texture of peace

The Economist Intelligence Unit launched today a study ranking 121 nations by their 'absence of violence.' The 24 indicators include internal and external factors such as levels of violence within a country, organized crime, the number of people in prison, and military expenditure.

A number of Nobel laureates, including Joseph Stiglitz, backed the study which named Norway and New Zealand as most peaceful and Iraq and Sudan as the least. For a complete ranking click here.

Latin America not competitive?

The World Competitiveness Yearbook, which mixes statistical indicators and perception surveys ranking 55 countries on their competitiveness, was released last week. Published annually since 1989, this year's report includes predictions of the role that commodities, corporate taxation, and the emergence of the middleclass will have on the future competitiveness of countries.

While the U.S. ranked first, all major Latin American countries, with the exception of Chile and Colombia, slipped this year. Corruption, excessive red-tape, poor infrastructure, and health and education services were key grounds for lowering countries' competitiveness score.

Better mousetraps for the poor

Frances Frei joins a growing group of scholars who provide evidence of substantial business opportunities at the "bottom of the pyramid." From her newest case study:

Magazine Luiza has made a business of targeting the bottom of the pyramid and is beloved as a company by employees and customers alike. I couldn't think of a service business that fit that description in the United States. We've been unable to crack that code of 'courting the poor' in any systemic way […]"

The Brazilian retailer managed to post profit for 12 consecutive years, and its customers have record-high loan repayments rates:

Magazine Luiza has also developed a flexible procedure for credit approval, using nontraditional metrics to enable customer with lower, less easily established incomes (a pushcart vendor, for example) to make purchases.

To get a feel of the store watch a 3-minute amateur video (in Portuguese, music included).

No future crises and modest growth for Latin America

A new paper, which estimated the accumulated cost of past financial crises in the region at 16 percent of GDP over a period of 25 years, predicts financial stability going froward but drab growth.

Next week at the World Bank