Five Winning Ideas in Finance and Development Marketplace

March 10, 2010

Kudos to AFD, the Gates Foundation, and the World Bank for organizing an outstanding Marketplace on Innovative Financial Solutions for Development last week in Paris. The organizers managed to bring together a lot of people with good ideas, and created an energized atmosphere worthy of the ‘marketplace’ idea.Here is a round-up of the five winners of the contest, and some other ideas that stuck out:Large-scale financeWinning team: a new initiative called Affinity Macrofinance – co-run by Results for Development – promises that “with the potential to provide AAA guarantees to bond investors in up to 80 low and middle income capital markets, Affinity can offer a unique way to tap the nearly $1 trillion in these countries’ pension funds and provide low cost, fixed-rate, and long term funding for projects to spur economic growth and social gains.” Regrettably, little detail is publicly available, but one hopes that the contest judges got to see more, and liked what they saw.A challenge for next year’s contestants: outdo a panel of distinguished development policy-makers, and take up Ngozi Okonjo-Iweala’s challenge to think about what is the next private-sector innovation/technology that IFIs could help take to scale. (Mobile communications technology clearly rules the roost at the moment – in some way or other, it was part of the majority of initiatives at the conference. What is the next big thing?)MicrofinanceThe proliferation of saving, lending, and insurance ideas at the conference left no doubt that this sector is rapidly maturing. It is no coincidence that three out of five winners came from this field. (Having evolved in our thinking from microlending to microfinance, how long before we start extending the concept to microservices other than finance?) I did not see a revolutionary new concept, but there were many small, smart innovations on display.Winning teams: IFPRI’s team led a field of initiatives influenced by behavioral economics with a rainfall insurance program for Ethiopia.  It has been carefully whittled down to the simplest possible structure, and adapted to the local context. The scheme offers insurance tickets in $1 increments, color-coded for growing seasons, and with payout-rules customized to local definitions of big and small rains. The increase in flexibility over standardized parametric insurance seems considerable. Researchers will be excited to hear that the team would like the insurance tickets to be ultimately available to non-farmers – recognizing that drought also affects other businesses.Another prize was taken by the Grameen Foundation for a ready-to-use business process for MFIs. A third went to a French team that has written code to allow online shoppers to round up every payment they make, and invest the difference in a Kiva-like micro-lending project.Idea for next year’s contestants: using weather insurance policies as collateral where farmers hold no land title.Climate financeWinning team: What was missing among nearly all of the many good projects presented was scale. Far and away the best idea came from an Indian team that aims to use the joint accounts of housing cooperatives as collateral in borrowing for energy efficiency improvements. The idea is simple, the presentation was low-key. But unleashing the enormous efficiency potential in the building sector has been a vexing challenge in developing and developed countries alike (the U.S. Senate is currently considering related legislation), and this seems like a spot-on solution for a developing country with vast emissions reduction potential in the sector.Honorable mention: A number of projects aim to link local off-grid renewable energy projects with the carbon market. A Dutch team added an interesting twist to this by planning on delivering through microfinance institutions. This is a potential seed for scale, and worth watching.No honorable mention yet:I participated in a panel on how to extend the AMC concept to the climate or agriculture field (DfID and CIDA are looking into it, respectively). The clean energy market is so different from the vaccine market that it makes no sense to just transplant the AMC concept. But donors are clearly interested in a large investment to overcome market failure in the clean energy field. Watch CGD’s website for more on this!


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