United Prosperity Team Blog
Insight on the latest happenings by the United Prosperity team.
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The last few months have been very hectic for me getting things operational, getting the marketing going and also trying to raise funds for operations.
Fund raising for operations is one of the biggest challenges we face and one of the questions I hear very often is why UnitedProsperity.org is a not-for-profit and why it isn’t a for-profit social enterprise. I explain that our model is unique, we are pioneering something new to the world, it involves crowd sourcing and support from thousands of microlenders and that a sustainable not-for-profit model or a social business model works the best for us. However, the feeling I get on several occasions is that a large number of social investors, philanthropists and even many foundations nowadays have already made up their mind on the type of organization they would like to support and believe that all social enterprises need to operate in a for-profit manner giving reasonable returns and in many cases lucrative returns to their investors.
For those who can pitch their organizations in 30 seconds indicating how their social enterprise can help mitigate a social problem and also give returns to their investors I think there are a large number of investors willing to lend an ear.
On the other hand, for those who have started non-profits however innovative, I think it is quite hard to raise operational funding. My most recent experience was in a discussion with a billionaire who thought United Prosperity was a great idea. But he simply walked away in the middle of a discussion when I told him that United Prosperity was a non-profit and I had no intention of turning it into a for-profit enterprise in the near future. And in our discussion I had also not solicited any funds.
To me these incidents serve as a cautionary tale of how far mainstream thinking and perception on social enterprises has gone from the actual ground realities. I think there are social enterprises which should be for-profit enterprises, several need to be non-profits and we need many more social businesses. In my opinion, for-profit social enterprises are not a silver bullet for all problems at the Bottom of the Pyramid and an ideological worldview that only for-profit social enterprises can scale and be sustainable can be pretty short-sighted.
My view that there is a huge role for non-profit social enterprises was further re-affirmed when I heard the presentation from Operation Asha at the IDCA Seventh International Conference-Chicago where I was also one of the speakers. Operation Asha is treating Tuberculosis (TB) in the slums of India. Despite the fact that TB is a treatable disease, it has assumed epidemic proportions in India, claiming the lives of 400,000 and newly infecting 2.2 million every year. India has the highest proportion of its population, 3.3 per capita, infected with TB and accounts for one-fifth of the world’s TB burden.
There were several things about their organization which impressed me a lot:
- They serve the poorest of the poor.
- They are very customer centric in their approach. They have outbound health workers who visit patients at the patient’s home and they also have several TB treatment centers close to the slums so that their patients don’t have to spend time and energy or miss a day’s work to visit these centers. While most government centers remain open from 10:00 AM to 1:00 PM, their centers are open from 7:00 AM to 9:00 PM so that their patients can visit the center at their convenience without missing a day’s wage.
- They practice stringent cost control and the cost of the treatment over 7 months was only $15. Interestingly, the patient needs to go to the treatment center about 70 times during the therapy over 7 months. The low cost speaks highly of the operational efficiency despite the extremely high level of transactions.
- The have leveraged the support of the community, corporate and the government very well. Operation Asha has access to free supply of medicines from the government. This takes care of 3/4th of the total cost. Further, with the space and services given by providers for a modest payment, every dollar is leveraged 35 times. Thus, with an investment of $15 only, Operation Asha is able to provide medicines and services worth $350 and treat a patient for the entire period of therapy, which lasts seven months, on average.
- Each of their centers becomes sustainable from operations in two years.
- They have achieved remarkable automation of their operations and were piloting bio-metrics with Microsoft.
I don’t know how hard it has been for them to raise funding, but anyone would agree that the work they are doing is remarkable and in many areas worthy of emulation in so many areas. We are fortunate to have organizations such as Grameen Bank, Brac, Amul and Aravind which have done remarkable work at the Bottom of the Pyramid and transformed lives. Had the ‘for-profit’ filter been applied very early in their lives, we may have never heard of these remarkable organizations.
I am pleased to announce the launch of operations with Ajiwika, a microfinance institution (MFI), and HDFC Bank as our partners in India.
It took us a year to sign the partnership agreement with HDFC Bank, but it is well worth it as HDFC lends to both large and small MFIs unlike most of the other banks that lend to only a few large MFIs. Many of the MFIs United Prosperity will work with in India will be working in the less developed states of India and our partnership with HDFC will be crucial in making sure that microcredit reaches the people who need it the most.
We also signed our partnership agreement with Ajiwika, an MFI working in the state of Jharkhand. Ajiwika is the first MFI in Jharkhand State in India. Ajiwika is operating in one of India’s poorest regions where over 80% of potential clients are un-served and where only a few MFIs operate. From my interactions with Ajiwika over the last one year I have been impressed by their commitment to social goals and their willingness to put the needs of the poor entrepreneurs first.
Looking back at the last 20 months in setting up United Prosperity, I am proud of our various achievements. Building a complex website in a very short time, putting together the legal documents for partnerships with banks and MFIs, analyzing the regulatory aspects in the US and website terms, setting up the partnership with HDFC bank, working with Ajiwika to upload and create entrepreneur profiles on our website, setting up the basic accounting processes – each of these tasks came with their own challenges.
I would like to thank each of our supporters – Cognizant, UC Berkeley Law School, O’Melveney & Myers, Hanson Bridgett, Tempus Law, NetSuite and Books2Taxes for their early and sustained support.
We are extremely fortunate to have a great team of nearly 50 people with experience, expertise and dedication to work with us and advise us. We would not have been at this point without their timely and invaluable contributions.
I greatly appreciate the initiative of our first partners, HDFC Bank and Ajiwika, in adopting the unique guarantee model of United Prosperity.
I would like to thank our numerous well wishers who have used their personal and professional connections to help us in this endeavor and my wife Shubha, who has been a constant source of support and encouragement.
Thank you very much once again.
Ever since I started working on United Prosperity, I have learned that progress in a startup happens in spurts. One is often faced with what seems like an insurmountable problem. You keep trying various things – nothing seems to work. Nobody seems interested in what you are doing or if they are slightly interested they have other priorities. And then one day suddenly someone decides to help and lo and behold, things start moving. The seemingly insurmountable problem now transforms into a doable task which then gets done with relative ease. This has been the consistent pattern with all the big milestones we have had like Cognizant helping us with the software development; UC Berkeley, Hanson Bridgett and OMM helping us with the legal work or HDFC Bank in India agreeing to partner with us.
I met Jonathan Lewis, CEO of Microcredit Enterprises a few days back at Davis and it was a great opportunity to bounce ideas and take advice on solving the seemingly insurmountable problems. ‘It took us 3.5 years to get a bank to start working with us’, he said. That gave me a perspective of the level of patience needed to overcome these startup obstacles. In our case, we approached a few banks in India and gave an overview of our guarantee in November 2007. However things picked up a little momentum only in May 2008 when we contacted HDFC Bank, India. Since then we have been closely working with them and are at the final stages of finalizing the legal agreement.
Another aspect which has struck me since I started working on United Prosperity has been that many of today’s complex problems like poverty or cures to tropical diseases tend to be outside or on the periphery of market forces and players. However, getting the necessary resources to solve complex problems like poverty requires the immense support and collaboration of mainstream market forces and institutions. They have the resources and expertise to solve different parts of the problem. E.g. we would not have come to where we are today without the support of Cognizant in building the software or the various legal teams who have helped us.
I got to discuss this with Jonathan Lewis. He was quick to highlight the importance of collaboration. ‘The current financial crisis is going to require an unprecedented level of collaboration’ he said. He is even putting together a forum called the Opportunity Collaboration where people working on poverty alleviation in various capacities can forge new alliances. Check it out.
Overall it has made me realize that combating poverty requires immense collaboration, which further requires patience. And for startups dealing with the seemingly insurmountable problems which come up from time to time, the value of collaboration and patience can never be underestimated.
And yes, we are all eagerly looking forward to sign the agreement with HDFC Bank in the next few weeks, so that we can launch soon.
Continued from ‘The First Break-through’.
By February, we had gathered additional momentum. Chiradeep Vittal joined the team and soon after Amar Singh, Ramkumar, Ramya and Vinay started building the system at a fast pace. We would have quick two week development iterations followed by testing done by Suriya Prabha and Supraja.
There was a ton of legal work to be done and we initially had a very hard time getting any law firms to help us. But after a little bit of struggle, things fell into place – Hanson Bridgett, UC Berkeley and O’Melveney and Myers started helping us with the legal work.
Meanwhile Natasha Ramarathnam joined us in India and we started talking to various Microfinance institutions (MFIs) who may need guarantees and also to the large banks who lend to these MFIs.
As we started talking to MFIs and MFI networks, we were soon struck by the enormity of demand and the amount of ground we had to cover. Rajkamal Mukherjee, a microfinance veteran and VP at Accessdev (a Microfinance network working with emerging MFIs in India), wrote to us:
“The AmFA partnership presently has 110 partners aggregating to outreach of 2.4 million clients and gross loan portfolio of over a USD 250 million. These institutions represent a major chunk of the 40-50% annual growth segment in the sector. Our assessment of the immediate demand for additional credit among the AmFA partners is of USD 600 million.”
This bottom up assessment of the demand was quite stunning. One would expect that banks would quickly step in and lend to microfinance institutions adequately at a market determined interest rate. But that clearly does not seem to happen, despite the fact that banks in most developing countries have enough capital to lend. One outcome of this has been that bank lending has been heavily skewed to the larger MFIs while smaller MFIs have struggled to raise adequate bank loans to meet demand.
Prof. Mohammad Yunus summarizes the problem beautifully ‘The biggest problem we face in trying to expand the reach of microcredit is not the lack of capacity. Instead, it is the lack of availability of money to help microcredit programs get through their initial years until they reach break-even level.’ He further adds ‘Local banks cannot lend to MFIs because MFIs cannot provide collateral. However, if an international or domestic organization steps forward to act as a guarantor, local banks are happy to provide the money’ (Nobel laureate Mohammad Yunus with Karl Weber, Public affairs books, Creating a world without poverty : Social business and the future of capitalism, page 70, 2007).
I would take Prof. Yunus’s argument one step further. To make bank loans available to microcredit programs through their initial years, we need to make guarantees easily available. And to make guarantees easily available we need a scalable way to raise funds from socially responsible investors. I believe that our internet-centric model has the potential to raise socially responsible funds in a scalable manner and make it available to MFIs when they need it the most. Implementing it calls for a lot of hard work from a lot of people. I will write more on that topic in another post.
Continued from ‘Just do it’.
By the end of July 2007, the idea had grown on me and I started putting together a quick outline of all the things I needed to do. I was working almost 60 hours every week at my job and doing this as a side project was infeasible. My wife, Shubha and I discussed this, and by September, I had quit my job and was working full time on United Prosperity. Within two weeks, Michael Laycock and Suriya Prabha joined the brainstorming and over the next two months we started putting together flow-charts and interface specifications of the system.
Around the same time, I met Ashok Parameswaran at Silicon Valley Microfinance Network. He was very keen on ‘doing something for India’ and soon got involved with United Prosperity. We started putting together the business plan and finding law firms to help us with the incorporation.
Many of the business and operating philosophies started emerging during this phase. To name a few:
- United Prosperity will be open, transparent and will collaborate with any organization engaged in eradicating poverty.
- We will keep our operating costs low so that the poor can afford our product. We would do that by:
o Using a scalable, clean and simple ‘cookie cutter’ business model.
o Automating transactions to a high degree, to reduce operating costs and minimize errors.
o Focusing on individual contribution and collaboration with very minimal management roles.
- We will work with only those partners who charge reasonable interest rates to their borrowers and treat their borrowers fairly and ethically.
As I started designing the system, I soon realized the complexities and decided to simplify features to keep the size of the initial release manageable. I had initially hoped that we might be able to build the system in an ‘open source’ development model with volunteer developers. But after some time I realized that it may not be possible. I started contacting several large software services companies to see if they might be willing to support United Prosperity as a part of their Corporate Social Responsibility initiative. I was able to reach fairly senior people within these organizations but made little progress for various reasons.
A friend of mine, Salil Punalekar emailed me one day. We did our MBA together and he was now working with Cognizant in Europe. He said that he had heard that I was doing something interesting and he wanted to help. I told him that we are looking for help with the software development and wondered if Cognizant would be willing to help. Salil forwarded my email to the Cognizant President’s office. A senior level team from Cognizant evaluated our business plan and proposal, and within a few weeks we had a team ready to start building the system.
This was our first break-through. It was February 2008 now and the next few months we would be busy building the system. More tomorrow and thanks for stopping by.
Continued from United Prosperity – The birth of an idea.
At the IIT conference which I attended, I got an opportunity to bounce the idea with several people. As with most IIT conferences, the enthusiasm was infectious and that got me even more excited. I quickly wanted to start validating the idea.
I did not know anyone directly working in microfinance and started looking up my contacts. Meanwhile I explained the idea to Michael Laycock, a colleague of mine at PMI. Michael was a Subject Matter Expert at PMI and we had worked together on a couple of large projects. His knowledge of finance was immense and he was an expert in operations, accounting and business processes with a keen grasp of technology.
‘This is a workable idea’, he said. ‘This is about socially responsible investing, which is rapidly growing. Basically this is about people in the developed world stepping up to their plate and taking some more responsibility. I don’t mind putting some money to help poor but hard working folks in the developing world and I am sure there would be others interested in doing the same thing’. And then very graciously he told me ‘I will help you with this idea if you ever decide to pursue this’. He then went on to explain in intricate detail of how I could apply for a brokerage license to do this or even better partner with a brokerage or bank to make this happen.
I also found out that Prof. Srinivasan, who taught me at management school, was deeply involved in Microfinance. Prof. Srinivasan, had joined IIM Bangalore where I studied, from Institute of Rural Management Anand(IRMA) and already had several areas of experience working with co-operatives and the rural sector in general. I wrote to him about the idea seeking his inputs and validation. His thoughts were that guarantees for microfinance institutions are relatively low risk, but there was always going to be political risk. He mentioned the case of how microfinance lending had halted for several months in the state of Andhra Pradesh in India. I set up time to talk to him and I had prepared nearly two dozen questions for him.
He answered each of the questions patiently and also gave me a detailed overview of the scenario in India. Most of my concerns were also addressed to a reasonable degree.
I had run out of specific questions and also accumulated simply too much information in my head. I finally asked him, ‘What would be your advice?’
‘Just do it’ he replied.
I let all the advice sink in over the next couple of days. I was already thinking how I would go about executing this.
More later, and thanks for stopping by.
Let me introduce myself and share with you the story of the birth of United Prosperity. My name is Bhalchander Vishwanath, ‘Bala’ to folks who know me. I came to the US from India 8 years back almost to this day. I worked with MphasiS and subsequently Infosys, building large software systems for financial institutions.
On the side, I kept coming up with startup ideas and would spend several months researching them – an innovation and idea management system, a website for comparison shopping of elective medical procedures and many more. I would typically spend 3 to 4 months researching each idea and then evaluate whether I should seriously pursue it further.
In 2006, I was working as a consultant with PMI, a Mortgage Insurance Company. Borrowers who have poor credit scores and cannot put the 20% down payment towards a home cannot get a mortgage. However, if the borrower or the bank buys mortgage insurance from PMI, the bank will make a loan to the borrower and the borrower can enjoy home ownership. Over the years, Mortgage Insurance or Guarantee as it is called has significantly expanded home ownership in the US.
My idea was simple, if guarantees could help people buy homes, why cannot guarantees help poor people get small loans from banks? I had heard a little bit about microfinance and I felt these guarantees could also expand the reach of microfinance. I started reading literature on microfinance and would spend endless hours reading articles and papers I could find on the internet.
Sometime in 2006, it was also announced that Prof. Mohammad Yunus, the pioneer of microfinance, had won the Nobel prize and that increased excitement in the field. But I soon realized that I had hit upon a massive roadblock – An organization which plans to offer guarantees needs to have adequate capital. How do I raise the several million dollars to set up a guarantee fund? I was a little disappointed that I had hit this seemingly un-surmountable road block and decided to move on to finding the next idea.
The next few months I spent time conceptualizing a website which would measure one’s carbon footprint. It would be integrated with a recommendation engine which will then suggest upgrades to household appliances, changes in lifestyle etc. By then http://green.yahoo.com was launched. It had similar features though a little more basic than what I had envisaged. There was also another well-funded project on similar lines being done by UC Berkeley. Given these, I was not sure if my idea could compete against these well funded ventures.
I came back to the earlier microfinance guarantee idea – it simply would not go away. I continued to read more on guarantees and microfinance and figure out how I could raise funds for the guarantee fund. Sometime in April of 2007, I came across Prosper.com and a few days later Zopa and Kiva. Peer to peer lending fascinated me. Instinctively I realized that this held a clue to solving my problem, but I did not know how. By then I also became familiar with the guarantees offered by Grameen foundation and Accion. I also learned that the smaller Microfinance institutions (MFIs) were not having adequate access to capital and no organization was offering guarantees to smaller MFIs. This was a problem waiting to be solved.
But after all this research by June 2007, I was beginning to get a bit impatient. I had no business idea. I responded by setting myself a deadline – I would come up with an idea by July 3, 2007. There was an IIT alumni conference in the valley the following week, and in one of the tracks, VCs would hear and fund idea pitches. I hoped to have an idea by then. The next few weeks I kept thinking on how the peer to peer model could come together with the guarantee model. And finally on July 2nd or 3rd, the whole thing came together: The general public will guarantee loans to entrepreneurs on a website. The guarantee will allow the MFI to borrow from local banks and make loans to the entrepreneurs.
The idea made sense to me, but another reality dawned on me. Just taking an idea to a VC will not secure funding. I decided to first get the idea validated. More on that tomorrow.
Thanks for reading.
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