Patrick O' On The Edge

11:15 Owen Auditorium

We are in a gleaming white auditorium-style classroom. Ranks of curved tables rise from the bottom of the room, marching up 7 rows to the top of the room. The tables are beginning to fill up with chattering students in business suites. A few plug laptops into the power boxes mounted in front of each station on the table. The two women front of me, both in their early 20’s, are discussing their travel to India and what they learned in terms of running MFI’s on the ground in rural areas. The session speakers are congregating below an enormous movie screen at the bottom of the room, planning their attack while they wait for the room to fill.

The speakers line up under the screen – 5 men in suites. The panel manager thanks Microsoft for sponsoring this session.

The moderator, Matt Daggett, is a youngish looking tall blond American. He works with Dalberg Global development advising corporations, NGOs and IGO’s on strategy. He says we are going to talk about scalability in micro finance. We will cover what’s working well, what are the challenges, and what is next. He introduces himself and the Dalberg company.

The panelists:

Chris Laurent, an investment officer at MicroVest responsible for Central America. He has worked for 15 years in the field. The biggest struggle in his job is to educate the investors and mfi management teams about capital flows and investment strategies.

Amitabn Saxena, works for ACCION, leading strategy for alternative channels. ACCION has recently shifted from its micro credit origins in Brazil to microfinance. He is looking at new distribution channels now, such as cell phones. He says that from his view microfinance is working well, competition is emerging, lowering interest rates and creating efficiency. As commercial banks enter the marketplace, his clients are seeing more pressure and are being forced to innovate. He sees alliances coming up next, including alliances with distribution channels,

Nathanial Bourne. XXXXX. He feels a lot of things are working: products are getting more adjusted to client needs, you see mfi’s trying to meet price points, new ifo technology is bringing down costs. He sees as a challenge the fact that this is a high touch sector and integrating high tech without losing contact with the lenders will be critical. He introduces a member of the audience who represents an mfi supporting bakeries throughout Mexico, as an example of that challenge. He says that other challenges are reducing transaction costs, getting prices down, understanding risks, and getting information to clients. He sees the greatest challenge in agriculture finance; much will depend on market forces and on factors the mfi’s can’t control, like weather.

Matt Pinsky, with Opportunity Finance Network (OFN, a domestic network of cfi’s - community finance institutions). OFN works with all 50 states and is involved in housing , non profit finance, and other sectors. He got into this when he was advising a presidential candidate that lost, so he need to find something else to do and a family network introduced him to the opportunity. Microfinance has a great reputation and performance; the challenge is to maintain that reputation and performance; what is next – maximize efficiency because the current model is inefficient. He calls this “scaleable customization” – how do you keep high touch as you add technology for efficiency.

Daggett asks the first question: who are the new entrants and who are the biggest players and what is the impact from big new players?

Chris Laurent of MicroVest.. What is working is scale through partnerships. When we work around the world with socially responsible funds we now see a huge sum of funds from the commercial finance. We think that the solution to poverty will come through micro finance. This will require scale and efficiency at all levels. We work with foundations and finance institutions by managing their money so we can place money into organizations that are innovative and touch their hearts. With our partnerships we will be able to expand from micro credit to micro finances. There are billions available from Wall Street, but they do not know how to do this. We can work with them to finance mfi’s and form relationships like with the UN, allowing us to place their money in even rural areas.

With partnerships we can draw from any sources of funds and lower our cost of funds. As micro finance becomes more educated, we will be able to scale this.

Amitababh. The larger commercial banks are now getting involved and ACCION is building relationships with them. This is the first of 3 new channels. We are also seeing a second channel of alliances between banks and mfi’s and retailers, i.e., Wal-Mart. The third new channel is mobile phones as a distribution systems. Africa and Latin America are ahead of everybody on this. This is a transformational channel in Africa - it is the only way to distribute loans. The value chain has a number of new entrants like foundations and credit card companies.

He understands that the entry of a Visa or MasterCard into the mfi network raises eyebrows but he sees it as a positive. For ACCION these lower transaction costs and enable them to reach people they could otherwise reach.

Nathan. Every bank in Mexico is going into micro finance and it is a for profit endeavor- no CSR involved. Two previous profitable endeavors, including Compartamos, is driving it. Our challenge is to build the credit bureaus. We need to keep track of the repayment capability, this is where credit bureaus can help. This will lower costs and help clients diversify their debt and not take on more than they can repay. He notes that credit scoring haws been tried but it is not widespread. More robust scoring models and data is needed for this.

Matt is asked what lessons can be drawn from the US experience – what do you see looking forward? He says that 10 years ago the idea was that we would import the model, but that has changed. Imported models did not work well, especially the pure lending model. The question for us is how do you capture the wealth of America. A challenge is that the perception of risk in micro lending is much greater than the actual risk. We need better market transparency. There is also a cultural issue - Americans have a donation mentality, not a lending mentality. We need to convince them that this is a business opportunity, not another charity.

Student questions.

Don’t companies like yours use sustainability to gain competitive advantage?
In climate change, we think it is necessary to have legislation which will affect all companies. You have to look at the entire value chain and see what customers want and what consumers want and then make those changes. It was not obvious to us that solar electric would be successful, but we took the risk and today this is a profitable business for us. We are a profit making business. We look for the hotspots in the value-chain and concentrate our efforts there. In some areas, like corn ethanol, we work with other companies, in some cases we work independently.

Will cap and trade cost jobs; wouldn’t a carbon tax do job better.
Yes cap and trade could have this effect, but the tax system is too complex to write effective carbon taxation, and that could have other negative impacts. Europe uses cap and trade after finding that volunteer cuts did not work. An alternative system that offered rewards and incentives through cap and trade and other policies, generates alternative ideas that work. In Europe many new ideas were generated and are starting to work.

The protestors claim that Dupont sells dangerous products and causes environmental impacts. Do you want to comment?
I support their right to protest, but you should knows that this protest is part of a national organizing campaign by the Steelworkers Union. But the claim that we use PFOA, a dangerous chemical, in our processes needs to be put in context. We have been testing and researching it for years and have found no adverse health effects. But we have reduced our use of it by 97% and by 2015 we will phase it out. This gives our customers who use it in their manufacturing time to find other products. As to the HCFC releases the protestors are claiming we do not record, we cut 72% of our use and we reported that, so they are not correct.

You have made some very bold goals, how are you training your employees worldwide about how to meet them?
We now have an account for every employee where they can calculate their impact and how they can reduce it. We also offer them a way to donate funds to plant trees to offset their impact. Our internal newsletter reports on successes every day.

How do you engage employees so they can really feel they can make a difference?
For 14 years we have given a sustainability award that evaluates projects throughout the company. The award goes to a non-profit selected by the employees, and includes volunteer time. I was in China and I saw a shut-down plant as we were driving to a meeting with the provincial governor, and the official with me told me that the mayor of the city shut it down for pollution. That mayor, he said, is now the governor that you are about to see and he will demand that your plant be clean.

How do you justify these projects to your shareholders?
The steps we are taking are good for shareholders because they save money and create new products. There is also a shift in our customers’ demands - $95 oil has helped a lot. We are not giving away the shareholders money, we are making products and profit for the future.

In many developing countries and here in the US we see the increase in organic farmers. What will Dupont do to help this? What about genetically altered plants...you make them don’t you?
Yes, we do make genetically enhanced plants and I understand that may be unpopular. But we have been able to increase production of some crops by 35% to feed the world. We have to continue to do this to reduce destruction of forests for crops and to reduce the use of pesticides. We are coming out with reduced-impact pesticides. Organic is great and if the consumer want it they should have it. We are the largest supplier of soy protein, a major way to provide protein without animals being involved.

Lunch panel: If You Are Not at the Table, You Are on the Menu - Social Entrepreneurship and Public Policy.

I move a classroom in the Wilson building, across from the lunch tent, envying the students eating lunch and lounging in the bright sunshine. The session is in a packed room with people (including me) sitting on the floor. In front of the room a young woman in a black pantsuit and two men in slacks and ties are powering up a PowerPoint (which I had been told by another presenter had been outlawed at the conference)

Kelly Ward, the blond in the pantsuit takes the floor and introduces herself as Director of the America Forward project at New Profit, Inc. She radiates energy, talking very fast, walking us persuasively through every detail of her topic and inspiring as well as informing. Young – early 20’s - and a graduate of the Kennedy School, Kelly Ward is a woman to watch.

AF is a coalition of social entrepreneur and advocacy organizations that have come together to leverage government to support SE. She says government can create an environment that can help SE organizations go to scale. She outlines three policy areas to push on:

Human Capital: Americorps is a way the government can scale – incentivising the 500K people in Americorps to get involved with SE organizations, providing a vast pool of free labor and experience.

Financial capital: government can change grant and tax policy to provide an infrastructure to help; small SE’s grow. More important she says, we need a parallel Small Business Administration for small businesses in SE. An SE SBA could provide the financial infrastructure for SE startups like it does for small business.

Political capital: a high profile candidate or elected official can raise the profile of SE. The President can redirect funds, as can governors. They did it with faith-based grants – the same could happen for SE.

Barriers: She says that government also presents many barriers, from bureaucracy to long timelines to regulations that impede SE.

Where do we go from here? (check out http://www.goodpolicy.blogspot.com)
Kelly points out that SE’s have been focused on the individual, what individuals can do to change the world. We can now move to policy and culture changes – on to how an SE economy will work. As this sector moves forward and grows, the next generation of leaders must band together and solve problems. We can embed into the culture the habit of thinking about the impacts of what we do; we starting this in business.

She has met with all the pres candidates and gotten a positive response from all of them, noting that Hillary Clinton went right to he policy needed.

The audience is rapt and full of very sophisticated questions. Among them is the definition of social entrepreneurism. Kay acknowledges that there are a number of definitions, but that hers is broad and encompassing.

The session ends with a virtual political rally. Kay hands out a list of things people can do to join and help America Forward, ranging from posting you tube videos to joining their Facebook page. At the end of the session, Kay is surrounded by students wanting to know more and get involved. Check this out at http://www.goodpolicy.blogspot.org

Lunch: back in the tent.

I must admit I was skeptical when I saw that McDonald’s was sponsoring lunch. But instead of big Macs we got a choice of peanut butter and jelly, turkey, or portabella mushroom sandwiches with pasta salad and a cookie and fresh fruit. I took the turkey, and removing the raw onions, found it quite good. The cookie was average. Beverages were from Adina – fair trade and healthy. However, on the table were MacDonald’s co-branded promotions for B-Movie laced with hints on how to create a sustainable world with a child-oriented game sheet directing children to go to the MacDonald’s website for more information on a sustainability. On the back, was a complete breakout of the ingredients and calories and fat of all MacDonald’s food. MacDonald’s has gotten the message and is helping Net Impact deliver it (we won’t ask if MacDonald’s beef suppliers graze their steers on former rainforest land).

Questions from the audience.

Has peer-to-peer lending been tried in the US.
Yes and it didn’t work. (some audience members murmured, What about “Kiva?”, but the question was not raised)

What has been the impact of the Compartamos IPO?
The Compartamos lender is part of the ACCION network. It started as an NGO and in 1998 went through a legal “transformation” process in Mexico to become a for-profit. They sold 27% of their shares for approximately $425 million, indicating a capitalization of around $ 1billion. Their interest rates are 86% a year, which he points out is below average in Mexico. The question now is if they can invest the money in more loans, but the criticism is that many people got rich in the sale. The other side of the issue is that the sale of a micro lending institution for that amount of money this brought many more lenders into the market and over time this will lower interest rates.

So the main issue for critics was the price, not the IPO itself, and the fact that what seemed like high interest rates paid by poor women in Mexico paid for a few people to get rich. It shows one extreme of the commercial model. It showed how to get capital from different markets and that was good, but they set their prices to reflect costs of high inflation and high loan costs. There average loan size was below the average for the region, which is an expensive model.

We have to keep in mind that it is very expensive to lend to poor people. It is very labor intensive because there is no data, it requires personal contact. Technology can help this.

How do lending circles work?
Lending circles re groups of women (and now men) who save a amount and then the group either loans sit internally, or as it grows into other businesses or into SME’s or mfi’s.

What is the gap between perceived and actual risks?
There are gaps at all levels, from the capital markets to the mfi managers. What has happened to the sub-prime market here has affected funds for mfi’s. Anything close to sub-prime is now seen as a high risk, especially when lending to poor people. Micro vest’s role is to educate all parties to what the actual risk is. We have to ask if the mfi managers are assessing risks accurately, even when they meet with the customers.

What is the impact of subsidized funds on the market?
They crowd out some commercial funds and lower interest rates (comment of mine: isn’t this a good thing?), which depresses the entry of more funds. But they have their place in starting up mfi’s with cheap or free capital. Nathanial notes that there is no USAID money involved in micro loans.

How does commercial capital address the need for small farm loans?
It is very difficult because the risks are so much higher and the returns are lower. The turnover is much slower so the costs are higher. Nathanial looks at the whole value chain to help predict the cash flow better to reduce the perceived risk. Amitabh feels that mfi’s are too risk-averse and can deal with 5% delinquency instead of the 2% or 3%. He also says that rural farmers might benefit from crop insurance more than just credit.

The session closes with a caution not to get enamored with technology. It is more important to remember our mission than to adopt the latest technology to lower costs and increase efficiency. The two must go together.

Questions.

Why have so many attempts at micro loans fail and you succeed.
We succeeded because we had dedicated students who knew the area and worked with a single ethnic group. Others models have failed because they tried to replicated processes from other countries here and they did not work well.

Erika answered that ACCION has succeeded because they have focused on trying to do one thing well, deliver credit that is appropriate for the market. We targeted specific markets and developed systems for that market. We have worked on our underwriting system to insure the clients are the right fit so we can move the process quickly. We try to make character-based loans based on references as well as credit reports. But it is a challenge in the US to make micro loans; we are only covering 40% of our costs. We have to reach scale to make a profit.

What is the worst loan you ever made?
Clint. That’s easy – it is one where you misjudge character. In our loan making we do a lot of due diligence. We spend time and money on due diligence the banks won’t pay for. Our target is businesses that are below the bank’s cutoff limit, so we have to. But the most important step is character. When we misjudge that, we lose.

Can mfi’s partner with commercial banks.?
Clint. 80% of my partners are banks. Many of the loans I made last year were referred to me by bankers who could not make those loans but knew they would be good loans.
Erika. We work with banks at the branch level now in Latin America. It is good for their PR and good business for them.

How do you deal with illegal aliens who need loans?
We don’t ask.

How does your service impact the payday loans places?
Not much. They are very tough competitors. We work on financial literacy – that will be the cornerstone of pushing back the payday loans. We are trying to train people to stay away from them.

What is the difference between micro finance and micro loans.
Erika. Not much. ACCION does not have an income requirement and the two are pretty much the same in our eyes. We want to be sustainable and eliminate all funder dollars by lowering our loan costs to a minimum.

What role does gender play?
Clint. Most of our loans are created to target minority women-owned businesses; 35% of businesses in Tennessee are owned by women.

ACCION. In the US less than half of our clients are women.

Warner. Our program is about half and half. I know there is a re-examination of all-female loan programs and in about a decade I think all loans will be half and half.

What are your interest rates?
Clint, we use a character-based lending model; the lower risk the lower interest. our rates run from prime + 2 to prime + 5. We can override the model when we think the character is good.

Do any of you see peer-to-peer systems as threats or opportunities?
Erika – I see it as all good. There is plenty of room for all forms of loans.

What are your repayment rates and repayment periods like?
ACCION repayment rate is 95%; loans are short term, the longest is 5 years.

Clint, we have a loss rate of 2%, trending down; our repayment rates are about 3 years, some are longer.

Woodward. Payback rates are very high well over 90% on 6 month loans of $500 to $800

Session 5: Microfinance in developed countries

Moderator: Luke Froeb, Associate Professor of Free Enterprise at Vanderbilt.

Panel
Warner Woodward, Professor of Economics at BYU
Eirika Eurkus, Senior Director ACCION USA
Clinton (Clint) Gwin, President, Southeast Community Capital

The discussion begins.

Clint. The US banking industry has consolidated in 10 years from 18,000 to 8500 banks. A handful of banks control the majority of capital in the nation. Because of this, the Southeast Community Capital organization partners with the Tennessee Banking Association.

Warner Woodward. Each of my classes complete a project involving microfinance, often creating a microfinance project. One of his students surveyed their local area and found that many Hispanics were moving into white conservative Utah and were not getting jobs or homes. This led to violence and instability. So his students started a training program to help them create business plans, give them group loans and start businesses. The loans ran around $500;. Despite the small size of the loans, people started successful businesses and paid back the loans. After they paid it back, they could borrow $1000 or $2000 to expand. Immigrants that reach that point are taken to Utah Micro Enterprise Loan fund for larger loans.

Saturday night.
I am writing this Sunday morning from memory as I could not bring a computer to the closing session or the closing party/ceremony at the Wild horse Saloon.

Liz Ma welcomes us and introduces Henry Juszkiewicz, President of Gibson Guitars, who gets a very loud cheer from the audience. He jokes that he should pull out his guitar and start playing, which brings more cheers.

He introduces Tensie Whalen, his long-time friend and fellow environmentalist. Tensie, the wrap up keynote speaker, is the Executive Director of Rainforest Alliance. Since I am doing this from memory, you might want to check out www.rainforest-alliance.org ,www.netimpact.org or http://www.owenbloggers.com/ and see if a transcript is posted later this week. Owen business school students were live blogging impressions and interviews.

Tensie explained the role of RA in certifying products, what it takes to work through the entire value chain to insure that products are certifiable, and the challenges and successes they have had. She is specially proud of their new coffee certification program which is now reaching close to 3% of the world's coffee traffic (sounds mall, but coffee is the second most frequently traded commodity in the world , next to oil, another thick black liquid that gives us energy).

After Tensie's talk and q&a session , Liz gets back on stage and brings up them staff who made the conference happen, and handed out awards. Given that this was one of the best organized conferences I have attended, all awards and cheers were well deserved.

And then we walked downtown to the Wild Horse Saloon for the wrap up party.

7 :30 pm. The Wildhorse Saloon.

The WHS is a three-story Country Western bar and dance hall. The best adjective I can use to describe it is cavernous, noisy, and fun. At one end is a huge stage with a theater-sized movie screen showing a football game. There must be 20 TV screens in scattered around the first floor all showing different football games (I didn't know there were that many games on a Saturday night, but then I am not a sports fan). In the center is a large and now empty dance floor surrounded by dozens of tables. Full-sized fiber-glass horses stream across the ceiling, huge horse paintings are on every wall, and fiberglass horses in various western costumes are sitting at some of the bars.

Upstairs on the second floor there are pool tables, foosball tables, dart board, more food, more bars, more TV screens with football games and more horses. Ditto for the third floor.

The place is filled with 2000 participants from Net Impact, many sitting together at their school tables. There are food buffets on each floor. The menu is salad, cornbread casserole, tequila chicken, pulled pork, (over) steamed broccoli, and apple cobbler. Beer was $5 and Bud Light was the official drink, although there seemed to be no shortage of local brew, tequila and Jack Daniels. Most people were happily eating, drinking and shouting to hear each other over the music.

The movie screen disappeared into the ceiling and the band started up about 8 pm and played a set. Liz took the stage with the dozens of volunteers who made the conference go so well, many wearing cowboy hats, and thanked them to cheers from the first floor. The band started up again and the conference was over and the party was on.

Ryman Auditorium
We enter through the back door to avoid the environmental activists at the front of the building protesting some of Dupont’s products and practices.

We are back in the historic former opera house. The place is full, although there are quite a few sleepy faces – some the same ones I saw last night at BB Kings Dance Club. There is a single podium in the center of the stage. Jim Bradford, Dean of the Owen School of Business at Vanderbilt takes the podium and welcomes us. He then introduces the capstone speaker, Chad Holiday, Chairman of Dupont who will give a speech entitled “The Bumpy Road”, referring to the road to reversing global warming.

Chad Holiday takes the podium. A native Tennessean, he welcomes us in a strong Southern drawl. He introduces the concept of the bumpy road to reversing global warming. He starts at the national policy level by saying that his company joined a national organization of firms to work for a cap and trade system of carbon reduction with uniform rules nationwide. American industry has gotten the message that this is a problem that needs to be faced and an opportunity to be seized, he tells us.

We at Dupont think the bumpy road will be traveled by multiple vehicles, the different energy sources and policy choices that can get us there. America needs to move all different vehicles forward simultaneously. Conservation needs to be part of that. He quotes a study by the Japanese industrial and trade agency, MITI, that shows how to reduce 15% of energy use. He tells about the “frontrunner” program in which MITI measured all electrically powered appliances, found the most energy-efficient and projected the savings of using only those ones and proposed mandating the use of those that reduced power use the most. The energy reduction projected by the MITI study was around 15%. He also quotes a US study of how to make buildings energy-neutral using solar, insulation, other techniques and get a payback in 7 years, well worth the costs.

He talked about bio-fuels being made from corn in this country and from other materials in other countries. His firm has been working with the DOE to make ethanol from cellulose – leftover from corn husking. The problems are not yet solved, but will be.
He tells us that the next generation fuel beyond ethanol is now under research.

He brings up solar electric energy, saying that financial calculations say that it doesn’t make sense financially to install. But he tells us that sales of solar electric materials are booming. His company and others are working on making this technology twice as effective as it is now.

His policy is to move all the vehicles at the same time.

He shifts to the destination of the bumpy road. If you had asked him when he was a student here, he would have said that the idea of buying a ticket to see Al Gore’s PowerPoint movie would have seemed strange, but he now feels that Gore deserved the Nobel peace prize. He saw the impact of the Al Gore movie when he was recently in Japan and other countries. Al Gore has made a huge step forward in educating people. But there is one more Nobel prize to be one – we need a similar PowerPoint or some other process to communicate the positive changes. (an audience member points out that Gore used a Mac computer and the program was not PowerPoint)

He tells us that he was at a very successful environmental fair in Japan that was energy neutral – powered by solar energy. At the fair Toyota described a vehicle that was like a large chair that you could program to get you where you want to go. Very lightweight, very low energy, very inexpensive, very innovative.

He describes another example of energy conservation, a European city that found that 60% of energy use in cars was from people looking for parking places, so they decided design a system to allow people to reserve parking places. More innovative energy conservation that costs nothing and also saves time.

He sums up saying that if we take these kind of steps and move all the vehicles forward, we can raise our standard living, reduce our energy costs, create jobs.

Net Impact is off to a great start with a professionals check-in party held at the famous Hermitage Hotel in downtown Nashville, a beautiful and imposing example of hospitality that is rare in America outside of New York.  From the smiling and helpful door staff to the crystal chandeliers and plush carpets and the larger than life portraits of civil war heroes on the walls, the Hermitage was the ideal introduction to Nashville.  And a professionals’ mixer party as part of registration was a brilliant way to turn the registration chore into a joy.
 
The party actually started that morning with a quintessential Nashville story for two of the women on my shuttle bus to the Hermitage.  They had been visiting the Grand Ole Opry – a revered music venue that is a signature of Nashville – when they were accidentally swept into the funeral of Porter Wagoner being held at one of the Opry’s theaters.  Wagoner was one of the most recognized names in American country music and his funeral was full of his friends and protégés from the country music scene.  My bus companions found themselves with Dolly Parton and other luminaries. Not bad for the first day.
 
The evening continued with taste testing of Jack Daniels Whisky, a local institution.  A bar was set up with experts to tell us about the different whiskeys and pour fairly generous tastes. Not being a whiskey drinker, one was enough for me, although there seemed to be no limit.
 
All in all, a good start.  My only complaint  was that the professionals got background music from a harpist while  the student party back on the Vanderbilt University campus got to rock out with Todd Kessler and his band.

Savitz opens by asking about the joys and frustrations of running a SE business.
Chouinard said he never wanted to be a businessman and the company grew organically until 1989 and he was in debt and he hit the wall.  He almost lost the business and it was a horrible time.
 
He realized he made the mistake of going for the growth only and stepped back and, when things turned sour, stopped and asked why they were in business. He and his employees sat down and wrote out their values – their mission was to make the best products and cause no unnecessary harm, and work with friends in a way that blurred the line between family and work, with lots of free time.  That was the turn around point.
 
He also realized that you can not meet that mission and be the biggest company in the field.  You have to stay small and the company has be run by the owner to keep up the quality.  So they decided to control their growth and grow organically...they let the customers tell them how much to grow...at about 3% -5% a year.
 
He stopped doing a yearly budget.  He says a yearly budget is a disaster.   He runs the company as if it will be here in a 100 years.  He has years in which growth is low and they are investing in the future, and years in which growth is strong.
 
Savitz asked him if he is a social entrepreneur.  Chouinard says his stockholder is the planet.  He is in business for different reasons that public companies.  He wants to make change and his company is his biggest resource.  He is a pessimist about the world;   he sees that the world is not sustainable in its present mode.  He noticed that many of his friends who saw Inconvenient Truth but failed to even change their light bulbs.  What  keeps him going is knowing that he is doing what he can to solve problems.

They turned on the country music, loud, followed by an announcement that no cell phones are to be used in the hall (which did not phase the people who were talking on their phones) and where the exits are.  Along with the announcements a wifi hot spot popped up by the name of “Production Office” on my computer, so it looks like the production staff is here and ready to start.

We are filing off buses and into the historic Ryman auditorium in downtown Nashville.  The building was built in 1843 and the one-time home of the Grand Ole Opry.  It  resembles a turn of the last century opera house with a broad, 1900’s-era stage incongruently flanked by towers of  modern speakers.  Two chairs are in the center of the stage with a small table between them.  A podium is off to stage right.
 
Students are still filing into the upper level Confederate Gallery – hundreds of very well-groomed (well, mostly) earnest business students, the men in suits and ties, and the women in pant suits, all with their  blue, white and red Net Impact name tags.
 
The conversations around me are mostly exchanging information about classes, professors, programs.  Many of the students here know one another from previous Net Impact Conferences.  There are entire Net Impact chapters here and the chapter members tend to cluster together.  My seatmate on the shuttle bus is a young engineer originally  from Mbai, India, now in business school at the University of British Columbia.  My breakfast table was split between students from Thunderbird in Phoenix and the University of North Carolina Business School.

The moderator introduces himself and asks the speakers to introduce themselves.
 
Mark Popviich, moderator is a senior Program Officer with the Hitachi Foundation.
 
John Younger.  His company, Accolo, replaces headhunters.  His firm is a social network that brings the right people together for jobs.  His firm has figured out how to connect a unique job with a unique person, using technology.
 
Margaret McClain.  Started Opportunity Industry Council to train and place poor people.  It started in 1964 to get children off the streets and out of prison.  Starts with assessment so you can know the capability of students. This tells you what you should teach and what they can accomplish.  OIC teaches life skills.  OIC fills the responsibility of the community to try to improve the lives of its people by taking the whole person into consideration.  OIC is national and international;  it has served 2 million people since it as founded.  She never thought this would be her career.   She started with a 90-day contract and stayed for 8 and half years.
 
Becca Stevens, Founder and president of Thistle Farms and Magdalene.  She started a ministry and worked with local poverty programs and found there were very few women being served.  Once, when she went to visit a woman in jail and found that many of the staff at the jail and the church were graduates of OIC, she had an idea of how  to work with OIC to help women who had been in jail.  She started working with woman in a small program treating 5 women at a time who had arrest records and who had been on the street.  She started a company to create products that can also communicate stories about women who are abused.  Her first product was a body balm and expanded from there. She now has 17 employees.  This year two of the women Thistle House rescued from the street bought their own homes.
 
She said that she spent 15 years at divinity school near Vanderbilt’s business school.  If she had known that business could be used to bring social justice to the world, she would have come to the business school years earlier.
 
Margaret worked in business but it did not help her understand working in poverty neighborhoods.  She now visits the prison every month. She finds that some employers abuse the system by hiring ex-cons to lower costs, but laying them off when they pass their test period and require benefits.
 
John tells us about living in a very poor neighborhood in Philladelphia and when he realized that after a month there of not talking to anyone, the neighborhood gave him a nickname. That changed his whole attitude and understanding.  It made him understand the uniqueness of each people.  That was the genesis of his idea for Acollo, of a process that matches unique people to unique jobs.  In his present role, he gives hiring managers a “shock therapy” to understand that that they don”t need to put up so many barriers to jobs.  The barriers screen out people who have talent but may not have gone to right schools or have been in jail, but who can do the job very well.
 
Question.  How do I recruit and train people for a new manufacturing social venture that will embrace the social venture aspects of the company?
John points out that this is not difficult, if you tell them about the company’s goal,  they will understand it, talk about and embrace it.  Becca points out that if you hire people off the street, they are not a different species – they will embrace and learn as quickly as anyone else. Margaret points out that you have to prepare people for the future – technology will change their jobs.  You have to be prepared as an entrepreneur for change and prepare your people for change.
 
Question.  Do you use partners?
Margaret replies that yes, they are the salvation of her program.  Companies like Dell are wonderful partners.  There are so few employers that will hire ex-offenders, so those that do are very valuable.  If you don’t bring in partners, you won’t find jobs.  And the jobs and the companies must be interesting to the employees.  The partnership must make sense to the employees. Becca points out that working with caring companies who can help with problems that the underserved must deal with, like transportation and day care.  By helping out with something like a car repair, they can save a job.
 
Mark notes that employers can be very risk averse and one problem can blow a long relationship.  This can be very frustrating for the workers who are often just learning the soft skills of getting and holding a job. John notes that price of hiring the wrong person can be 2 or 3 times the salary of the person.  John tires to show them how not to take risks in hiring while getting the right person.
 
Question.  What are your products and what is the role of  your women in creating them?
Becca had lined up the products of Thistle Farms in front of her. (the full line can be seen at www.thistelfarms.org).  The body balm was inspired by a number women who came in from the street. We started having parties at work and tried many things, some of which worked some didn’t.  Some products were championed by individual women.  There are always ups and downs - the lavender used was grown locally, but was killed by a frost and they are now looking for a new location to grow lavender.  But the company is growing- $250,000 in revenue last year.  John notes that ASTIA is specifically designed to help women entrepreneurs and might help the Farms.
 
Question.  how do we find people for our company from underserved communities who don’t fit normal job templates.
John says to write a job description from the heart as if it were a letter to a specific individual.  You will get much more response and better response.  John also recommends meeting potential hires where they live instead of at your office.

The room is packed- standing room only. The moderator is a Vanderbilt econ professor, Dr. Lames Foster, with a great  radio voice.  He asks the panel to introduce themselves.
 
Jessica Flanenery, co-founder of Kiva starts off. She stands up because she is short and the bright yellow flats she is wearing give her no height.  She makes up for it in the depth of her words. Jessica says she just graduated from her program at Stanford and now has more time to focus on Kiva.
 
Mike Gabriel is next, a young Asian man dressed in a blue blazer, blue shirt and grey pants.  Graduated from business school in 2006 after a BS at Vanderbilt University.  He found that he shares many of the values of micro finance after a career in banking. He had an epiphany which led him to the Capital Markets Group at the Grameen Bank, which helps microfinance groups access commercial capital.
 
Richard Shuman, a technical officer for CHF International works in the micro finance in housing.  He runs a special groups that gives loans for home improve.  CHF has 11 affiliates in 10 countries.   He like to visit the local institutions and meet the clients. His background is in economics. He came through the Peace Corps
 
Foster asks the panel to comment on where is the field going.  Richard thinks it is going to shift to commercialization, and he thinks that this means the non-profits need to change.  He says he sees the “3 mores” in the future for NPOs:  more institutions providing more loans to more peoples.  As an example he notes that] Wal-Mart in Mexico has a banking license and is studying micro loans.  Microfinance now reaching 100 million people, but there is a lot of work to be done.  To him, this means that is good for the clients - greater competition is coming.  But it is tough for the lenders because they have to do more, like client service .
 
Foster asks the panel how can each of them can reconcile doing good with doing well. Jessica points out that Kiva is a non-profit so the question does not necessarily apply.  Jessica explains that she heard Mohammad Unis speak and was transformed.  She moved to E.  Africa and heard many stories of success and she and her husband two years ago called a friend and asked how do they get started.  Her lesson is to just get started.
 
Michael says that the Grameen Foundation looks at microfinance as an industry.  It works directly with institutions directly to provide technical and consulting solutions.  It also works with mfi’s to provide capital.  He notes that there are tremendous amounts of money coming in from commercial sources and investors.  These institutions are helping outreach, but there is a shift towards profit making and drift from the mission.
 
The Bank’s progress-out-of-poverty index, a client-level metrics tool that tracks how well borrowers are doing is useful for staying on mission.  The bank is trying to blend that tool with commercial banking criteria – it provides guarantees and credit enhancements and  helps lower costs of funds, negotiate terms and build relationships.
 
The moderator asks if the intent of money makes a difference – does a loan from someone who wants to do good function differently than one made for a profit.  He refers to the IPO of Compartamos in Mexico which enriched many investors. The charge is that Mexican women pay high interest rates as a result of that IPO.  Shermann says that  the answer to the doing good and doing well questions is to focus on the clients and be as efficient as possible.   If you do that, he says you are doing good and well.  He provides financial services to people are not served otherwise.  He points out that there is always a tension between the doing well and doing good.
 
Foster asked if it is true that microfinance will impact how philanthropy is done.
 
Jessica points out that the role of technology is key and has impacted philanthropy.  It connects borrowers and lenders around the world and it allows an organization like Kiva to aggregate thousands of small loans and donations into a large borrower base.  Shermann points out that an MFI brings respect into the transaction, and we must be careful that technology does not harm that respect.
 
As the conversation shifts to technology, Gabriel notes that Grameen is working on an open source software to speed up the loan process, and if it scales, they will release it.
 
Audience questions:
 
Question:  Why don’t you give a village a large loan for infrastructure instead of small loans to villagers?
Shermann points out that there are problems getting the village people together, getting them agree on a project, insuring they will all pay the loan back.
 
Question:  What kind of training are needed for the mfi’s?
Jessica says you have to stay very focused to be sure that the MFI knows what they need, but says Kiva is not yet sure that investing in training mfi’s is beneficial.  Schumann says they do a lot of training of mfi’s and others.
 
Comment/question from  Sean Foote, an advisor to Kiva who teaches micro finance and is an investor.  He notes that there is a huge need for innovation in the field....25% of mfi’s are not sustainable.  The question is about what innovation is needed?  Jessica responds that the best thing to do is spend time in a particular country and get to know it.  Gabriel says that the need is to develop second-line management who can take over when the passionate people who founded a lot of mfi’s leave. 
 
Question.  do private banks that cater to the very wealthy have a role.  Gabriel says that Grameen works with them.  He notes that it depends on the borrower, but this is a growing field.
 
Question.  What is the role of interest rates?
Jessica.  We lend interest-free to MFI’s, but there is a role for interest rates in generating more capital in the marketplace.  Gabriel notes that the younger mfi’s need the interest break to get going, but later  the bank charges them interest.  Currently every borrower that comes to Kiva gets funded;  if that changes, interest rates may play a role .
 
Question.  How does urbanization affect microlennding.  Schumann says that  there is an impact and  they are starting a program  in Ghana and India to upgrade living conditions...it’s only two weeks old, so no results yet.  Gabriel notes that loan officers have less distance to travel in cities, but in some  places the urban areas are saturated while the need may be greater in rural areas.  It also takes longer for rural borrowers to repay loans than urban dwellers.
 
Question.  Is there a need for second round financing for good clients.
Shumann says there is a market for it and CHT  is trying to fill it, but as of now we need to work on this.
 
Question.  What kind of research is there on performance for micro loans?
 
Gabriel. Not much;  there is a need for this.  We have a scoring tool and there are rating agencies, but there is no good predictor of the relationships between a loan and leaving poverty. A audience member points out that we need to look beyond business literature and risk analysis for this.  We should look at sociology and other fields for this.

1.  If you hire friends, how do you manage them?
You don’t.  You get someone else to do it. You get consensus. My employees are very independent.  You don’t give orders.   I never call in.  I leave people alone.
 
2.  Are you involved in R&D?
Yes.  We do it differently.  We develop our own fabrics using an environmental assessment process to minimize the damage our products do.  We do very thorough research and we have our own testing labs.  Most importantly, we look at the manufacturing process for its impact eliminate impact before it starts.
 
3.  How will you guarantee your company will continue with your values after you are gone?
It is tough. US tax laws essentially require a private company to go public.  We are working on it, but it is tough.
 
4.  What do you think of farm subsidy?
It is insane.  We have the government we deserve and its nuts.  How many of you trust corporations or believe that government will solve our problems (no hands go up). How many believe religious leaders who not in jail will lead us out of this mess, (no hands go up).  There is no money to be made in finding causes, only cures.  We can’t do this without government, but they won’t solve our problems.  Vote for the environment.  All of the office holders who are now in jail voted against the environment.
 
5.  Is there any tension between recycling and selling more?
We are responsible for our products from birth to birth. We are switching all of our products to recyclable materials.  We ship them back to Japan where the materials are recycle into new fiber.
 
6.  Have you convinced Wall-mart to only buy organic cotton?
There is a revolution in business going on.  Deep down inside a lot of businessmen know it is all over. I have business people call me every day to see how we do it.  Wal-Mart execs visited me and I said how far do you want to go – your parking lot, your products, your suppliers?  Do you want to change the world.
 
7.  Tell us about 1% for the planet.
I started this organization to support civil society for the environment.  It is like a tax – which I believe in – a self tax for the environment.  Each company makes out checks to environmental organizations.  770 companies are now involved and we are growing by one a day, mostly small companies who have to stretch to give 1% of sales.  And when they do, their business shoots up.  Public companies will join when they see it gives a marketing advantage.
 
Savitz closes the session repeating Chouinard’s phrase “creative pessimism”.

Liz Ma, Executive Director of Net Impact, comes on stage and welcomes us.  She tells us that there are over 1800 students and 300 speakers, representing several countries.  The theme of the conference focuses on how business can help make the world better by building a sustainable future.
 
She notes that 15 years ago no one would have predicted 20 people would be here from Net Impact.  Today there are 166 chapters, the largest being from Yale.  They have started undergraduate chapters and now have enough chapters in Europe to launch a European conference. 
 
Liz introduces Seth Goldman, the Tea-e-o of Honest Tea.  Dressed in a purple shirt with a black fleece vest, he tells us that the purpose of the conference today is to inspire.  He introduces Yvon Chouinard, founder and CEO of Patagonia.  Chouinard started his own thing, a business based on mountaineering, but stopped when he realized his equipment was destroying mountains.  He did the same thing with clothing,  but instead of shutting down, he innovated for sustainability, moving away from cotton because of its impact on the environment.
 
Chouinard will be interviewed later by Andy Savitz, the author of The Triple Bottom Line who now consults to companies on their sustainability practices.
 
Andy opens the conference with an introduction of Net Impact.  He points out that NI is an organization that is changing business and the world,  and that the change is needed.  “We are badly managing the environment and creating gaping holes in the social environment” he tells us.  But he is  optimistic.  “After all, if the Boston Red Sox can win the World Series twice in my lifetime, anything is possible.”
 
Savitz gives a history of Chouinard and Patagonia describing Patagonia as the “sweet spot of sustainability” – an area of business strategy practices that are good for business and good for the world.”  He notes that the conference organizers forbid him to use a PowerPoint so he asks the audience to close their eyes and imagine the overlapping circles of business and sustainability in a huge PowerPoint. After we open our eyes again, he welcomes the keynote speaker.

James Lincoln  moderates a panel made up of  Steven Piersanti      of BK media and    Juan Martinez  of the Knight Foundation.

Lincoln puts up a PowerPoint outlining the double bottom line criteria of his investing.  they don’t invest in the big media;  they look for minority and community media with a social mission they can trust, and economic growth opportunity. 

Panel perspectives on investing in the media.

Juan Martinez, CFO and treasurer of the Knight Foundation.  The Knight brothers made their fortune in newspapers in communities nationwide.  The foundation today follows their principles of quality and honesty, community development.  The Knight Brothers look to journalism to build communities and bring them together.  Talks about the Digital Challenge, a grant competition to open the doors to new ideas to use digital communications to bring communities together.

The foundation supports non profits and for profits to generate new ideas and impact. The view grant making as a investment portfolio with risk return tradeoffs and early and latter stage investments.   For grant requests, they examine them for impact on Knight’s strategic goals, the management strength of the management.  Investment in commercial ventures must meet these requires plus show social impacts and positive commercial .returns.

Steven Piersanti of BK publishing talks about book publishing, a little industry with a big impact.  The US industry is only $30 -$50 billion with low barriers to entry and is highly disaggregated and is subject to fierce competition.  So why invest?

Profits can stream for many years.  If a book works, it sells year after year, after year.  And the company can sell rights deals to the  same property, which enables ta book to serve as an annuity that generates revenue without new costs.

But many investors are  looking for faster returns and the ability to sell the company for a capital gain.  Unfortunately, publishers are often privately held and their assets are book titles, which are intangible assets, which are hard for traditional investors to work with.  Traditional investors want to be able to invest in firms with tangible assets that can go to the bottom line.  Some firms now operate, like the Literary Ventures Fund, have set up investment vehicles that are tuned to book publishers.

Nth Power
Matt Jones of Nth Power, a clean energy investor, which has $400 million under management and invests in sustainable energy technology companies.  His slide show says that there are several drivers behind investment in clean energy: energy cost changes in the global energy markets, “market pull” for new technologies and customers who insist on clean power.  He points to a recent report that this is a global market – 600 million people in India are off the grid and the power supply in that country is 20% below demand.

The cleantech energy market is varied with opportunities ranging from solar to biofuels to wind to other technologies.  There is now $2.5 billion a year and rising invested in clean tech energy, 37% in biofuels, 24% in distributed energy and 20% in energy intelligence systems – technologies that make energy use more efficient.  We are now seeing a convergence of many sciences and investment sources to change our energy use habits.

Currently 51% of US energy use is coal which produces 80% of the carbon,  The investment opportunities are equally strong in industrial, residential and commercial use, especially in conservation and new energy efficient designs and retro-fitting.

I attended the CleanTech breakout session looking at investment potential for solar, wind, and other new power sources. 

City of Los Angeles
Our first speaker is the Deputy mayor of the City of Los Angeles, Nancy Sutley.  LA is the nation’s largest utility and one of the world’s largest supplier of water and power.  She ran down the response of the city to state legislation and the demand for alternative energy.  the city intends to divest itself of  coal-fired power and make the power mix of the city 30% new energy, spending almost $2 billion dollars to reach that goal.


Verdant Power.
Matt Klein of Verdant Power, Inc. which makes submerged electricity turbines.  He showed us photos of the East River turbine field, across from the UN.  The turbines operate underwater and generate power that is sold locally.  The turbines have minimal or no environmental impact and work with the flow of the river.  He described his firms capitalization and capital needs to expand.  His PowerPoint feature photos of installations and sites in the US, the UK and Canada.