Now, say what you will about our 40th President, the cat knew how to plan ahead. Synching his 100th birthday with the 45th Super Bowl — no accident, I say.
Americans have always had a soft spot for Ronnie. It’s somewhere at the back of our skulls, which, normally, houses the higher functions of reason and logic. When his smiling face appears on the screen, when he begins to intone, with that lovable wobbling of the head: “Ya know……” Even if we know it can’t be true, he makes us want to believe it. It is said that when his Budget Chief, David Stockman, tried to tell his President that he could not balance the budget by spending more than he took in in tax revenues, Ronnie, looking baffled, asked “Why not?”
Stockman was purportedly so disillusioned with Washington’s dysfunctional culture, he went back to Wall Street, where he was accused (but never convicted) of duping investors and running his investment company into the ground. He’s a complex fellow. He advocates raising taxes on the rich. He was my neighbor when I lived on Dupont Circle back in the 1980s. Rahm Emmanuel once rented my condo. I was at a Hollywood soiree a few years ago with Rahm’s brother, the real life “Ari” from “Entourage”. Some call this “degrees of separation”. In Washington, this is all the cache you need to claim someone as “a Dear Friend.” As in, “Oh, yeah, Rahm, Ari and I are dear friends.”
My own relationship with Ronnie is also complex, as well as nuanced. (Everything these days is “nuanced”. If not, it has “subtext”. It is both nuanced and has subtext, see a doctor immediately.) Twenty years ago, I began work on a novel “Ronnie’s Greenhouse”. The novel took place in the year 2050. The Republican Party, greatly diminished after a string of electoral defeats, desperate to recover the black magic of the Reagan years, sends a forensic team out into the environs of Bel Air, California, in search of Ronnie’s DNA. They strike paydirt: Many years ago, Ronnie’s horse, Jelly Bean, threw him onto a cactus, leaving a minute sample on one of the thorns. From this, they reconstruct “Ronnie II”. The battle over whether Ronnie II is, in fact, a different person and eligible to run, rages at the level of the Supreme Court. Clarence Thomas casts the tie breaking vote. Ronnie II is in!
That’s as far as I got. Jessica, my agent, has promised me that if “Handbook” does well, she will help me market ”Ronnie’s Greenhouse”. Come on, now, Jessica, you promised!
All right: to work. Anonymous, co-winner of the Oscar Wilde quote, has two questions, one of which is “light hearted”, and the other “a little more serious”. I don’t know if I’m subverting blog protocol by answering here vs. in the comment chain, but here we go.
Light hearted question goes to the thorny, timely issue of profits earned by microfinance companies. “While I am a firm believer that microfinance is a good thing, does it remain “good” when the people who are lending make huge profits?”
Whew, if that’s “light hearted”, does descending into a Black Hole feel like a walk through the Gardens at Giverney on a sunshine shot day in May? Never mind. Let’s answer the question.
There are warring perspectives on this, vying for the heart and mind of public opinion. At one end of the spectrum is Nobel Prize Winner Muhammad Yunus, founder of the Grameen Bank in Bangladesh, which was originally funded with grant money, but now is capitalized mainly through savings of its client-members: 6 million low income Bangladeshi microentrepreneurs.
For most of the brief history of microfinance, practitioners followed the lead of Yunus, building their MFIs first with donations, and then “graduating” to more traditional financial structures like commercial banks and finance companies, although these were specialized institutions focusing on the mission of helping people in developing countries escape poverty.
About ten years ago, some practitioners, inspired by the example of Silicon Valley, questioned whether the same model that made software industry entrepreneurs rich could work in the microfinance field. This involved making an “angel investment” in a young MFI, then scaling it up rapidly so that revenues and profits grow at astronomical rates, resulting in a high “valuation” (say, 10 times book value) when the company goes public, producing a massive “pay day” for the founding investors. The first to try this model was a company named Compartamos in Mexico, where the founding board members and management team made as much as $50 million each. The second was in India, when a company named SKS scaled up a warp speed, growing from several hundred thousand clients to 9 million in a few years, leading to an IPO which turned its founder into a multi millionaire.
People like Yunus and many others were scandalized by this use of microfinance, a tool associated with helping poor people, to make people rich.
The practioners in Compartamos and SKS, however, argue that they are still “good guys” (albiet now multi-millionaire good guys) and that the Venture Capital model was the only way they could raise sufficient capital, quickly, to scale up their MFIs and enable them to help millions of clients quickly.
They have a point. However, they also have created two big problems, both for themselves and the industry.
The first problem is that they have tarnished the crown of the whole microfinance industry, which for a long time was considered to be driven by the purest of motives: helping people get out of poverty. This “halo” was tremendously useful in gaining the support of individuals, governments, and bank regulators, who were often willing to go the extra mile to help MFIs carry out their missions. Now, sadly, we are perceived by many to be just as bad or worse than the pirates on Wall Street who crashed the Global financial systems and reaped massive profits in the process.
The second — and to my mind, larger — problem is what this rapid scaling up to create value has done to the clients, at least in the Indian case. It has over indebted many of them, and, if we are to believe the local politicans in the Indian state Andar Pradesh, even driven some to suicide.
To say the least, this is not what those of us who founded the movement had in mind for the future of the industry.
Is there another path? I believe there is. It lies in the potential of “social investors” — or “impact investors”, as they have come to be called — to provide the capital to scale up the industry, and in a way that does not require the extraction of mega profits, but rather leaves the lion’s share of the fruits of their labors with the clients themselves.
I better stop here, or I won’t have space for the “serious” question on office dress etiquette, or, as Anonymous puts it:
Do you, as CEO, ever feel the need to wear yellow check trousers, red sweater and yellow check scarf when at the office, and do you ever have to speak to people in rhyming couplets?
How did you know? Most days, I spend a full hour before the full length mirror in my bedroom, trying on different ensembles until my wife tears the clothes from my hands and forces me into something she thinks won’t force everyone at FINCA HQ to put on a welder’s helmet.
By God, I see the word count is at 1244. Sorry ’bout that. We won’t get to Global Warming today. But as Scarlet said: “We’ll worry about that tomorrow!”