Strategic CSR - Diamonds

The article in the url below suggests that the producers of lab-grown diamonds are overcoming one of the main criticisms levelled at their products – that they consume large amounts of energy to manufacturer, so are not nearly as green as they are marketed:

"A decade ago, they were relatively unknown in the jewelry industry, but now make up a fifth of diamond sales by value. … Made largely in China and India, lab-grown diamonds are produced using heat and pressure but without any mining. The lab-growing process, however, does require huge amounts of energy, so stones' green credentials depend on where the power comes from."

Having solved the issue of having to dig these things out of the ground (often under appalling conditions), the next step was to remove the emissions associated with the vast amounts of energy required to produce lab-grown diamonds:

"Danish jeweler Pandora's diamonds are made using renewable energy and set in recycled gold and silver rings. It said a cut and polished one carat diamond has a carbon footprint of roughly 9.2 kilograms, less than a tenth of the carbon emissions for a natural diamond—106.9kg CO2 based on research from the Natural Diamond Council."

Similarly:

"In 2019, Laura Lambert launched Fenton, an ethical jewelry brand based in London. Three years later the former retail executive started selling lab-grown diamonds produced in a solar-powered factory in Gujarat, India. … She says her own market research indicates currently only about 5% of all lab-grown diamonds are made using renewable energy, but it has been something her customers have been asking for."

As a result of the growing market share of lab-grown diamonds:

"Miners' revenues have dropped sharply. De Beers, the world's largest diamond miner, sells its rough diamonds in ten selling cycles during the year. The volume and quality can vary but is a good barometer of appetite for natural diamonds, as well as prices. In the last cycle of 2023, De Beers sold $130 million worth of diamonds compared with $417 million a year prior."

In spite of this progress, lobbyists for real diamonds are still able to question the sustainability of lab-grown diamonds (see Strategic CSR – Diamonds):

"'Consumers are being told that lab-grown diamonds are sustainable and that couldn't be further from the truth,' says David Kellie, CEO of the Natural Diamond Council, a diamond mining trade group. The group began airing videos on social media in April as part of what it calls a 'myth-busting' campaign. According to a new report by the group, more than 60% of lab-grown diamonds are made in China and India, where climate-polluting coal is the major power source. The report also touts efforts by the mining industry to cut carbon emissions and boost the economies of countries with major diamond mines such as Botswana and Namibia."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e 

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Lab-Grown Diamonds Go Green

By Yusuf Khan

January 11, 2024

The Wall Street Journal

Late Edition – Final

B6

https://www.wsj.com/articles/diamonds-made-with-solar-power-are-offering-fiancees-ethical-fashion-475d1c7b

 

Strategic CSR - Diamonds

The article in the url below suggests that artificial (man-made) diamonds are beginning to make serious inroads into the market for natural diamonds:

"More than a third of all engagement rings with center stones purchased last year were created in a lab, according to an online survey of nearly 12,000 U.S. couples. … That's double the number from 2020."

Since the survey data are self-reports, the results might be dismissed by some but, if there is a bias, I would expect it to be in favor of inflated numbers for real diamonds. More important, I think (and missing from the report), is whether it is price or values that is driving demand. A natural diamond takes millions of years to be created and then, of course, needs to be mined under conditions that are often far from ideal. Artificial diamonds, on the other hand, clearly do not take quite so long and are much more accessible (and ethical):

"Man-made diamonds are grown by placing a diamond seed in a sealed chamber with a carbon-containing gas such as methane. The carbon atoms bond like a lattice to the seed, building up a diamond crystal. It takes about 600 hours to grow one carat depending on the method. Their appeal, according to lab-diamond makers, is that they cause less environmental and human damage than mining diamonds from the earth as well as their cheaper price."

As a result, it is assumed, their popularity is spreading:

"It's not just engagement rings. Diamonds grown in a lab accounted for 13.6% of the $88.6 billion in diamond jewelry sold globally in 2022, up from less than 1% in 2015 where they had hovered since the early 2000s."

Specifically, the goal (for supporters) is to eradicate the possibility of an unethical supply chain:

"Proponents of man-made diamonds say growing diamonds in a lab helps stamp out conflict diamonds, or diamonds mined in war-torn regions and used to fund insurgencies. [In response] The mining industry says it traces the origins of diamonds to help stop the flow of conflict diamonds under what is called the Kimberley Process."

But, even if the primary motivating factor is morality (and the environmental angle is interesting), it is not clear there is an easy choice, as the main lobbing group for the diamond industry is getting better at arguing:

"'Consumers are being told that lab-grown diamonds are sustainable and that couldn't be further from the truth,' says David Kellie, CEO of the Natural Diamond Council, a diamond mining trade group. The group began airing videos on social media in April as part of what it calls a 'myth-busting' campaign. According to a new report by the group, more than 60% of lab-grown diamonds are made in China and India, where climate-polluting coal is the major power source. The report also touts efforts by the mining industry to cut carbon emissions and boost the economies of countries with major diamond mines such as Botswana and Namibia."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e 

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This Wedding Season, Diamonds Face a Challenge

By Suzanne Kapner

April 29-30, 2023

The Wall Street Journal

Late Edition – Final

B1, B6

https://www.wsj.com/articles/this-wedding-season-diamonds-face-a-challenge-171c9e7

 

Strategic CSR - Population

I wanted to draw your attention to the article in the url below just because it seems like a pretty big deal:

"China has been the world's most populous country for hundreds of years. In 1750 it had an estimated 225m people, more than a quarter of the world's total. India, not then a politically unified country, had roughly 200m, which ranked it second. In 2023 it will seize the crown. The UN guesses that India's population will surpass that of China on April 14th. India's population on the following day is projected to be 1,425,775,850."

I had long ago heard that India's population would one day overtake China's, but I guess I did not expect it to happen right now. What is important about this point in time, though, is what the shift signals:

"The crown itself has little value, but it is a signal of things that matter. That India does not have a permanent seat on the UN Security Council while China does will come to seem more anomalous. Although China's economy is nearly six times larger, India's growing population will help it catch up. India is expected to provide more than a sixth of the increase of the world's population of working age (15-64) between now and 2050."

It is also interesting that China's population has been calculated to have peaked, while India's still has a way to go, as depicted in the charts accompanying the article:

 

Given that a country's population is generally negatively correlated with its level of economic development – higher wealth and participation of women in the workforce leads to declining birth rates (India's economy is still growing and projected to be the world's third largest "by 2029," but it's per capita GDP remains low), and given that India clearly still has room left to run, this will have all kinds of implications for resource utilization and, in particular, energy use (given that both countries still rely on fossil fuels, coal in particular, to produce their energy).

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e 

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Fatter elephant, leaner dragon

By Brooke Unger

November 18, 2022

The Economist

Late Edition – Final

71-72

https://www.economist.com/the-world-ahead/2022/11/14/india-will-become-the-worlds-most-populous-country-in-2023

 

Strategic CSR - Walmart

The article in the url below provides an update on the ongoing Walmart bribery investigation in Mexico:

“Wal-Mart on [November 15] reported that its investigation into violations of a federal antibribery law had extended beyond Mexico to China, India and Brazil, some of the retailer’s most important international markets.”

On the upside, at least Walmart disclosed the expanded investigation voluntarily this time, rather than being ‘encouraged’ by The New York Times (see: Strategic CSR – Walmart in Mexico). On the downside, however, the announcement of the expansion via regulatory filing suggests the extent of the FCPA violation is both serious and widespread throughout Walmart’s international operations:

“A person with direct knowledge of the company’s internal investigation cautioned that [the] disclosure did not mean Wal-Mart had concluded it had paid bribes in China, India and Brazil. But it did indicate that the company had found enough evidence to justify concern about its business practices in the three countries — concerns that go beyond initial inquiries and that are serious enough that shareholders needed to be told.”

The disclosure is more concerning in that, in recent years, Walmart has relied on international operations to drive growth throughout the firm. Both in terms of lost revenue and mounting costs, the full consequences of this investigation for Walmart are still far from clear:

“Wal-Mart has so far spent $35 million on a compliance program that began in spring 2011, and has more than 300 outside lawyers and accountants working on it, the company said. It has spent $99 million in nine months on the current investigation.”

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

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Wal-Mart Takes  Broader Look at Bribery Cases

By Stephanie Clifford & David Barstow

November 16, 2012

The New York Times

Late Edition – Final

A1

http://www.nytimes.com/2012/11/16/business/wal-mart-expands-foreign-bribery-investigation.html

Strategic CSR - Climate Change (II)

The article in the url below is a review of a book by Dieter Helm of Oxford University titled The Carbon Crunch. The book’s goal is to provide:

“… a cogent account of how self-defeating current global climate-change policies are turning out to be.”

The core idea of the book counters the perception that it is a failure of political will that accounts for worldwide inaction on climate change. Rather, Helm argues that it is a failure of misplaced priorities and economic incentives gone awry that are the main problems:

“They have caused people to focus on the most expensive ways of mitigating climate change, rather than the cheapest, imposing high costs for little gain.”

Two points the review highlights about the book stood out for me. First, is the idea that, while Europe continues to focus on reducing its own carbon emissions (and feeling very proud of itself in the process), it continues to promote an economic model that relies on imports from many countries that rely on carbon intensive production processes:

“Since Chinese and Indian manufacturing is usually dirtier than Europe’s, the real upshot of Europe’s choices has been an increase in global emissions.”

Second, the review explains in clear terms why alternative energies, such as wind, have failed to establish themselves as a viable economic alternative to more traditional energies:

“Wind-power generators are expensive. But this is only part of the problem. They are also intermittent. One day last February, wind power produced almost a third of German electricity; four days later, nothing (it was a calm day).”

The result of this is that wind-generated energy is highly unreliable. While this is problematic in itself, it has significant consequences for the rest of the energy sector:

“Nations have to build lots of spare capacity for windless days. This was fine when wind farms were marginal, but now they produce a tenth of Germany’s electricity and their output is rising fast. To make matters worse, wind messes with the economics of the spare capacity, too. When the wind blows, the extra energy is free. Other forms cannot compete and the standby generators have to close. But other sorts of power stations are not designed to be switched on and off: they are supposed to run all the time. Since energy cannot yet easily be stored, wind farms are making other forms of energy uneconomic.”

The result is a corrupt process that is highly inefficient and unproductive:

“The system therefore relies on a panoply of subsidies which, as night follows day, has produced an enormous industry to compete for them—wind and solar firms, lobbyists, NGOs and politicians. The entire renewables sector, Mr Helm argues, has become an orgy of rent-seeking.”

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

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How to fix it

The Economist

October 20, 2012

http://www.economist.com/news/books-and-arts/21564815-climate-change-needs-better-regulation-not-more-political-will

Strategic CSR - Monsanto

I am no defender of Monsanto, but the article in the url below presents some data that are hard to ignore. In particular, the article focuses on crop yields in different countries. In the U.S., where Monsanto has had a large and controversial influence on the agribusiness industry, crop yields are far superior to countries with less-developed agribusiness industries:

“Typical corn yields, in bushels per acre:

• U.S. - 150
• Argentina - 129
• Mexico - 126
• EU - 119
• Brazil - 98
• China - 84
• South Africa - 68
• E. Europe - 56
• India - 37”

While mass-produced agriculture is far from ideal for the ecosystem, certainly not for everyone, and criticized by many (e.g., http://www.corpwatch.org/article.php?id=15783), it is hard to ignore the data. Some of Monsanto’s innovations can add value in developing economies with agricultural sectors routinely decimated by difficult weather patterns, low access to fertilizers, and overall inefficiency:

“India gets as many bushels of corn per acre as the U.S. did 70 years ago.”

There is insufficient land in the world to satisfy our food demands solely via organic production methods. While national governments play a huge role in policing food production (making sure it is safe and sustainable), it is hard to escape the conclusion that firms like Monsanto need to be included as part of the solution to satisfying the nutritional needs of the world’s growing population.

Have a good weekend.

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

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More Monsanto Magic Likely to Be Reaped

By Spencer Jakab

April 4, 2012

The Wall Street Journal

C1

http://online.wsj.com/article/SB10001424052702304750404577322042307002620.html

Strategic CSR - Gibson Guitar

The article in the first url below reports on the U.S. government’s raid on Gibson Guitar in August last year:

“In August federal agents raided Gibson plants in Nashville and Memphis in search of evidence that the company had illegally imported ebony and rosewood from India, to be used for fingerboards. At the main Nashville plant, two dozen agents from the U.S. Fish and Wildlife Service and the Homeland Security Dept. rushed in with guns on their hips and zip-tie cuffs dangling from their chests.”

The legal basis for the raid was the Lacey Act:

“… a 100-year-old conservation law that regulated the trade of game and wild birds before being amended in 2008 to include wood and plant products. Under the revised law, importers need to ensure that they and everyone along their supply chain comply with domestic and foreign laws regarding timber. In this case, Gibson had run afoul of India’s laws prohibiting the export of any unfinished wood products; the shipment included 1,250 slabs of rough-cut timber.”

More specifically, the article highlights the issue of how responsible a firm should be for its extended supply chain:

“Importers of timber were now required to name every species of wood they used and were held accountable for the lawfulness of every logger, middleman, and wood manufacturer along the supply chain. … The Lacey Act is credited with bringing greater transparency to the timber trade and with helping to reduce the amount of illegal logging.”

Like many laws, the Lacey Act contains good intentions, imperfect implementation, and unintended consequences. In Gibson’s case, however, the government acted decisively. As a result of the legislation, Gibson is being held responsible for the actions of its many suppliers in Madagascar, India, and the other countries from which the firm imports the rare hardwoods it uses to make its guitars.

My question: How reasonable is this? Is it the U.S. government’s role to impose its values in policing firms in India and Madagascar, or is that the responsibility of the governments of those countries? More generally, how reasonable is it to expect Gibson to monitor all aspects of operations of independent companies in foreign countries? What if Gibson is deceived by those firms? And, does it matter whether consumers care about these issues?

Lots of questions and not many answers from what has been publicly disclosed about the case to date. There are some indications, however, that perhaps Gibson’s claim of ignorance is not as plausible or defensible as first appeared:

“Malagasy rosewood and ebony are considered the Beluga caviar of tone woods, and the hope was that guitar makers would motivate growers and loggers there to operate legitimately. … Every company but Gibson, however, decided not to do business in Madagascar, finding the trade too risky. Gibson ended up importing ebony from a logger named Roger Thunam in northeast Madagascar who had recently been arrested for illegally trading in precious woods. … In 2009 a team from the Environmental Investigation Agency, an independent group committed to exposing environmental crime, posed as timber buyers in Madagascar and found illicit logging there rampant. Thunam was dealing in obviously illegal wood. … the criminal nature of the Malagasy timber trade was so openly discussed and widespread that it wasn’t even necessary to go undercover to observe it—there were hundreds of loggers cutting away in the national park, with a steady flotilla of tree-filled rafts and trucks emerging from the forest.”

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

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Rock n’ Roll Will Never Die

By Ben Austen

January 23 – 29, 2012

Bloomberg Businessweek

p72-77

http://www.businessweek.com/magazine/the-us-vs-rock-n-roll-01192012.html

Strategic CSR - Seven Social Sins

In my readings over the holiday, I came across Gandhi’s Seven Social Sins—seven things that he believed would destroy us as a civilized society:

·         Wealth Without Work

·         Pleasure Without Conscience

·         Knowledge Without Character

·         Commerce (Business) Without Morality (Ethics)

·         Science Without Humanity

·         Religion Without Sacrifice

·         Politics Without Principle

Some of these strike me as more pertinent today than others, but it is hard not to conclude that we are failing Gandhi’s test on multiple levels.

Many of these sins, of course, are directly relevant to the CSR debate. What I find most striking about the list is Gandhi’s emphasis on process, rather than outcome. Today, in contrast, we worry more about where we are, rather than how we got there. Just thinking through the implications of the first sin (wealth without work), for example, speaks volumes about the extent to which our values have shifted over time.

For additional insight and commentary on each of the social sins, see this extract from Steven Covey’s book ‘Principle Centered Leadership’: http://www.mkgandhi.org/mgmnt.htm

Have a good weekend

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

Instructor Teaching Site: http://www.sagepub.com/strategiccsr/

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Strategic CSR - 7 billion

The article in the url below reports that, today, the United Nations estimates that the world’s population will surpass seven billion people (probably somewhere in India). See the World Population Clock for confirmation: http://www.worldometers.info/world-population/. The shock is not the number itself, but the speed at which the total has grown exponentially in recent years:

“The first billion people accumulated over a leisurely interval, from the origins of humans hundreds of thousands of years ago to the early 1800s. Adding the second took another 120 or so years. Then, in the last 50 years, humanity more than doubled, surging from three billion in 1959 to four billion in 1974, five billion in 1987 and six billion in 1998.”

The article goes on to question whether the planet can support this many people. The author reports plenty of good news to suggest, in theory, that the Earth can easily support its current population and even a much larger one:

“Between 1820, at the dawn of the industrial age, and 2008, when the world economy entered recession, economic output per person increased elevenfold. Life expectancy tripled in the last few thousand years, to a global average of nearly 70 years. The average number of children per woman fell worldwide to about 2.5 now from 5 in 1950. The world’s population is growing at 1.1 percent per year, half the peak rate in the 1960s. The slowing growth rate enables families and societies to focus on the well-being of their children rather than the quantity.”

In practice, however, there is also cause for concern:

“Nearly half the world lives on $2 a day, or less. In China, the figure is 36 percent; in India, 76 percent. More than 800 million people live in slums. A similar number, mostly women, are illiterate. Some 850 million to 925 million people experience food insecurity or chronic undernourishment. … While the world produced 2.3 billion metric tons of cereal grains in 2009-10 — enough calories to sustain 9 to 11 billion people — only 46 percent of the grain went into human mouths. Domestic animals got 34 percent of the crop, and 19 percent went to industrial uses like biofuels, starches and plastics. … Already, more than a billion people live without an adequate, renewable supply of fresh water.”

And, the future prospects are daunting:

“The United Nations Population Division anticipates 8 billion people by 2025, 9 billion by 2043 and 10 billion by 2083. India will have more people than China shortly after 2020, and sub-Saharan Africa will have more people than India before 2040.”

The conclusion, which is hardly news, is that we are growing at an unsustainable rate—not only in terms of numbers, but the amount of resources being consumed by those numbers and, more importantly, the way those resources are being consumed:

“Human demands on the earth have grown enormously, though the atmosphere, the oceans and the continents are no bigger now than they were when humans evolved. … The mismatch between the short-term incentives that guide our political and economic institutions and even our families, on one hand, and our long-term aspirations, on the other, is severe.”

The upshot is that, while we should be able to manage the world’s population growth; the reality is that we are shooting ourselves in the foot (or, I suppose, our 14 billion feet).

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

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7 Billion

By Joel E. Cohen

The New York Times

October 24, 2011

pA19

http://www.nytimes.com/2011/10/24/opinion/seven-billion.html

Strategic CSR - Social Entrepreneurship

The article in the url below highlights flaws in what it terms “the trendy field of social entrepreneurship”—the framing of developing world problems based on a Western perspective and then proposing out of context solutions without fully understanding the real-life complexities.

The article, in particular, focuses on a competition, initially proposed on Harvard Business Review’s website, to design a $300 home to alleviate housing needs in poorer parts of the world, such as in India’s slums:

“But one expert has been left out of the competition, even though her input would have saved much time and effort for those involved in conceiving the house: the person who is supposed to live in it.”

The article then goes on to outline why “the $300 house will fail,” explaining that many residents already have equity of up to $3,000 in their current properties and are unlikely to surrender that value, while importing ready-made constructions will disrupt the local employment of laborers, carpenters, plumbers, and so on. In short:

“The $300 house will fail as a social initiative because the dynamic needs, interests and aspirations of the millions of people who live in places like Dharavi have been overlooked. This kind of mistake is all too common in the trendy field of social entrepreneurship. While businessmen and professors applaud the $300 house, the urban poor are silent, busy building a future for themselves. ”

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

Instructor Teaching Site: http://www.sagepub.com/strategiccsr/

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Hands Off Our Houses

Matias Echanove & Rahul Srivastava

The New York Times

June 1, 2011

pA25

http://www.nytimes.com/2011/06/01/opinion/01srivastava.html

Strategic CSR - Microfinance

If you have been following recent developments in the Indian microfinance industry (Issues: Microfinance, p245), you will know that it appears to be falling apart as quickly as it expanded. The articles in the two urls below indicate the extent of the crisis and outline some of the reactionary legislative responses that are being put in place.

While the first article focuses on the damage being done in India:

“India's rapidly growing private microcredit industry faces imminent collapse as almost all borrowers in one of India's largest states have stopped repaying their loans, egged on by politicians who accuse the industry of earning outsize profits on the backs of the poor. The crisis has been building for weeks, but has now reached a critical stage. Indian banks, which put up about 80 percent of the money that the companies lent to poor consumers, are increasingly worried that after surviving the global financial crisis mostly unscathed, they could now face serious losses. Indian banks have about $4 billion tied up in the industry, banking officials say.”

The second article looks at the contagion effects in nearby countries:

“Bangladesh, the birthplace of the global microcredit movement, has decided to cap interest rates for microloans at 27 per cent, the latest sign of a growing regulatory backlash in south Asia against an industry once hailed as a "magic bullet" to cure poverty. The move came just days after India's microfinance industry agreed to a voluntary 24 per cent interest rate cap on its microloans in the southern state of Andhra Pradesh, where local authorities have accused the industry of charging usurious rates and employing coercive collection tactics.”

Spurred by high repayment rates and the success of organizations such as Grameen Bank (Case-studies: Grameen Bank, p246), for-profit firms quickly realized they could make money in microfinance, as well as bolster their CSR credentials, as long as they remained relatively more virtuous than the loan sharks that had previously dominated the market.

‘Relatively more virtuous than loan sharks,’ however, is not setting a very high bar. It certainly does not make a firm virtuous by any objective measure. While there are definitely higher costs involved in making smaller loans to a larger number of customers over geographically dispersed areas, it is not clear how charging up to 50% interests rates achieves the social mission of alleviating poverty (which is the driving force behind microfinance). What is happening, in reality, is relaxed standards for loan issuance on the part of firms seeking to grow and higher indebtedness on the part of already poor borrowers who are increasingly incentivized to borrow.

For-profit firms, naturally, face pressures to grow and be more profitable than not-for-profit organizations. What is vital in order for firms to retain the societal legitimacy necessary for long term survival, however, is that this growth is pursued within a sustainable business model. While having politicians encouraging loan recipients to stop making repayments is far from ideal, the Indian and Bangladesh microfinance firms that are suffering as a result have only themselves to blame.

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)

© Sage Publications, 2011

http://www.sagepub.com/strategiccsr2e/

Instructor Teaching Site: http://www.sagepub.com/strategiccsr/

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Microcredit Is Imperiled In India By Defaults

By LYDIA POLGREEN and VIKAS BAJAJ

1393 words

18 November 2010

The New York Times

Late Edition - Final

5

http://www.nytimes.com/2010/11/18/world/asia/18micro.html

Bangladesh caps microfinance rates at 27%

By Amy Kazmin in New Delhi

485 words

10 November 2010

Financial Times

http://www.ft.com/cms/s/0/fd16a1f0-ecea-11df-9912-00144feab49a.html

Strategic CSR - Microfinance

The article in the url below suggests the dangers of success for the microfinance business model (Issues: Microfinance, p245):

“SKS Microfinance, India's largest lender to the poor, aims to raise about $350m this month by selling a 21.6 per cent stake in an initial public offering expected to spark a wave of listings by equity-strapped Indian microfinance companies.”

While the high rates of repayment and community structure present a real opportunity for microfinance institutions to be profitable (or at least self-sustaining), the profit-maximization pressures (higher interest rates and lower loan qualification standards) that accompany a public listing carry the potential to undermine the social-entrepreneurship microfinance goals (Issues: Social Entrepreneurship, p189):

“Muhammad Yunus, the Nobel Peace Prize-winning founder of Bangladesh's Grameen Bank - the world's most famous microlender - has criticised the commercialisation of the industry, saying profit-oriented microlenders are little different to the loan sharks they once set out to replace.”

The possibility for corruption quickly arises as the pursuit of profit spreads across the sub-units of the organization:

“SKS, which says it has 7m borrowers in 19 Indian States, also plans to boost its revenues through alliances with large companies to distribute their products - such as mobile phones and water purifiers - even as it provides rural consumers with the microloans needed to buy the items.”

The article in the second url below shows the success and rapid growth of microfinance organizations, such as SKS, in India:

“For the last three years, outstanding loan portfolios of Indian micro-finance institutions have grown by 65 per cent annually, according to the World Bank, with total loans of about $2.5bn to about 22.6m households.”

As well as reinforcing the threats:

“Typical loans average between $200 and $250, and carry rates of about 28 per cent - lower than money-lenders, albeit still expensive when compared with commercial bank rates.”

Take care
David

Bill Werther & David Chandler
Strategic Corporate Social Responsibility: Stakeholders in a Global Environment (2e)
© Sage Publications, 2011
http://www.sagepub.com/strategiccsr2e/

Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


SKS Microfinance plans to raise $350m in IPO
By James Fontanella-Khan in Mumbai and Amy Kazmin in New Delhi
418 words
21 July 2010
Financial Times
Asia Ed1
17
http://www.ft.com/cms/s/0/1879f6e4-9422-11df-a3fe-00144feab49a.html

New networks help ease debt dilemma
Kazmin, Amy
603 words
21 July 2010
Financial Times
Asia Ed1
17
http://presscuttings.ft.com/presscuttings/s/3/viewPdf/37730595

Strategic CSR - Microfinance

The article in the url below discusses some of the problems that have resulted from the recent explosion in growth of the microfinance industry (Issues: Loans, p188). To some degree, microfinance is becoming a victim of its own success.

In general, the microfinance industry has been altered by the influx of for-profit firms that have learnt from successful nonprofits to develop a business model that relies on the high repayment rates that are typical within the sector. With profit as a stronger focus, however, these new microfinance lenders are increasing interest rates and introducing much more liberal criteria for extending credit.

The primary focus of this article, however, is on the continued success of traditional moneylenders in India (who charge much higher interest rates), who are flourishing in spite of the success of microfinance. It turns out that the source of the high repayment rates for microfinance is also the source of the microlenders’ ongoing success:

“Some microfinance borrowers say they need village moneylenders to help them pay their debts on time. … Peer pressure to pay back microfinance loans is intense, because microlenders almost always require borrowers to join small, tightknit groups. If one member defaults, none can get another loan. Microloans have a stellar repayment rate -- close to 100% -- and some analysts believe a hidden reason is the stopgap provided by moneylenders.”

Borrowers are willing to put up with higher interest rates in order to get easier access to credit and avoid the social ramifications of failing to meet their microfinance commitments:

“… the moneylenders are virtually indistinguishable from the microlenders. They distribute knock-off versions of the microlenders' passbooks. Some use the same weekly repayment structure and door-to-door service as the microlenders do. The difference, however, is that the moneylenders give loans faster, without asking the women to form groups and serve as each other's guarantors, as microfinance lenders do in order to ensure a higher repayment rate. They also charge significantly more than the four microlenders serving the neighborhood.”

Take care

David

Bill Werther & David Chandler

Strategic Corporate Social Responsibility

© Sage Publications, 2006

http://www.sagepub.com/Werther/

Microfinance grows along with rivals --- Small credit lines were supposed to trim use of high-interest loans in India's rural areas, but moneylenders flourish

By Ketaki Gokhale
1386 words
16 December 2009
The Wall Street Journal Asia
8
http://online.wsj.com/article/SB126055117322287513.html