Tuesday 30 August 2011

How to belong? Acknowledge your differences - smile - enjoy the ride.


Where does one belong? What does it take to belong to a particular place? Why should one try to belong to a particular place? Can one even belong – whether to just one place, or more?

These questions are highly relevant for me, given my upbringing and also given the decisions I face in life right now (location and belonging is an important consideration for where I choose to spend the next 12 months). I have moved to live in a new city 12 times in just the first 24 years of my life (I know my way around 15 world cities now – it’s the best, more liberating feeling in the world, when you reach that point in your relationship with a city). And if past performance is any predictor, this number will continue to grow. I have the choice of spending the next 12 months in East Africa, South America, South Asia or South East Asia. I am tempted to pick a combination of all four, although I am well aware that this does not make any sense in terms of building depth of experience (current thought process is to spend another 6 to 8 months in East Africa, followed by 4 to 6 months in South America – followed of course by a two-year MBA, most likely in the US of A, another new location). And I know for a fact that it’s not just me – anyone who has spent just a summer in a foreign country, or even merely travelled is likely seeking answers.

But why am I reflecting on these questions now? As I travelled to and landed in Islamabad yesterday, I felt a strange sense of familiarity but a lack of belonging. Some might call it “culture shock” or rather “reverse culture shock”. It was indeed a very raw sub-conscious rebellion against change. But it’s not just Islamabad. It’s the kind of rebellion I have had to go through in many new cities.

Earlier this year, when I was here in Islamabad on a consulting project for a just a few months, I went through exactly the same motions. After a week or so of turmoil, those months turned out to be some of the most productive and rewarding months of my life. My consulting project was extremely interesting and offered me with a lot of insight into the corporate world, especially on corporate governance. I built some amazing relationships with my teammates and some folks from the client side. I got to reconnect with family and old friends, discover new parts of my culture, really think through and understand to some extent the issues facing my country and enjoy simple raw pleasures – such as watching the Cricket World Cup with friends and local supporters, and eating great food.

Nairobi was no different. My first three weeks there were absolutely miserable. I had a tendency in those early days, not to flip out on the change of cultural scene (for fear of being branded a colonialist), but rather the grubbiness of my material existence (which was not grubby at all in the grand scheme of things). In fact, I actually enjoyed the cultural aspects of the change, watching evangelical preachers on the GOD channel or the Kenyan Parliament in session at breakfast in the Ngong Hills Hotel. Both of those were very different to anything I had ever seen or experience before – even surreal. But that breakfast room was dark and dreary, and the cornflakes they served had a strange sweet taste to them and were not crisp. And there was not much more for breakfast, other than bananas and tea. My walk to work in the mornings left me choked with smog, and often wet in the rain. Miserable!

But as it turned out, this summer in Nairobi was absolutely phenomenal. I got to meet so many incredible new people, including building at least half a dozen in depth relationships; did some amazing adventure and cultural travel; and got to a learn a lot about a new country – an interesting one which has a lot of parallels with Pakistan (at least I am in a the unique position to draw those – which I abuse to the hilt). Professionally, I have been at the forefront of change in an organization which I am passionate about. The next 8 months in Nairobi are likely to be equally amazing if not better: I plan to learn Swahili; climb Kilimanjaro and Mount Kenya; take my tennis to the next level; and take one or two my artistic pursuits to the next level (salsa and drumming if you may ask).

But why is Islamabad such a shock after just 4 months away from it? What I have realized in all my city moves is that change is most difficult is when it’s back to familiar grounds (reverse shock). Nostalgia can be good and bad. Brings back memories, both good and bad (mostly good), but also raises (near) existential questions about why one left in the first place. I am writing this post sitting in the grounds of the Islamabad Club, a place that brings back many fond childhood memories (learning to swim, birthday parties, family gatherings, etc.). Driving through Islamabad on the way to Islamabad Club brought back many more memories. It felt like a bit of a ghost town, on the day before Eid, when everyone has left for their home towns, but nevertheless just as I remember it (used to be much less crowded growing up here than it is nowadays).

But I think the crux of the issue might be very simple – I am just different now and find it hard to fit in. I have either “out evolved” the people and/or surroundings I left behind (a very strong statement), or shudder to reconnect with them or re-understand them. I definitely hold a bit of anger and helplessness (negative emotions) against things taking a turn towards something different, especially when it comes to my core values and interests versus those I see around me. Or perhaps they were like this all along and I have changed.

Maybe I am only just starting to discern things from a “different” lens, given my own personal turns in life (or my “evolution” as I like to call it – strong statement). As I got onto the plane from Dubai to Islamabad, the Deobandis were out in full force (that familiar character from my earlier post – “Religion to the extreme”). Their paternalistic values were on full display. The Deobandi gentleman next to me passed a snide remark against the fact that Emirates was serving wine on a flight to Pakistan, which according to him is especially deplorable in the month of Ramadan. I smiled politely and told him that people should have that choice (he probably thought I was being sarcastic).

Television back home has been turned into the GOD channel (24 hours of preachery) – it has always been a bit like this in Ramadan, but this might be the worst it has ever been. Now there is a lot of God in Kenya as well, but it doesn’t make me cringe the way it has been making me cringe here in Pakistan over the past couple of days. This is perhaps because I expect to belong here, but am realizing that I simply do not – not because I want to go reverse militant on the mullah tide which is sweeping the country.

Some of the developments are very strong and quite entertaining – I am trying my best not to be intolerant – allow me to demonstrate. Javed Miandad, the legendary Pakistani cricketer, has started singing religious hymns on television, even though he is not a singer and should not be allowed to sing, at least on national television. Junaid Jamshed, the singer, has a one hour slot on prime time television where he delivers religious sermons. He even has a game show now – a religious version of “Who wants to be a millionaire”, where the top prize is an apartment in Mecca. The questions are on religious history or facts.

And it’s not just God or religion. Conversation is generally superficial – especially for a country in the midst of a crisis, if not a full blown civil war. Topics include – where to immigrate to; which car to buy; how real estate prices in Lahore will perform this year; and how everyone is praying for the moon to be sighted early so that no one has to keep an extra fast (each Islamic month, including Ramadan either has. 29 or 30 days, depending on the sighting of the moon).

So core values or interests in life are clearly misaligned, or rather have become misaligned over time, but the language and customs are extremely familiar. As we were driving across Islamabad today, I was taking pleasure in being able to read the street signs in Urdu with ease. Indeed when I have been in East Africa, the Middle East or even in the UK, I have drawn on our music and poetry for raw cultural or artistic pleasure – even pride. As I like to say, a little bit of it is the gift or burden of having to live up to my name (Ghalib was one of the best Urdu poets of all time). Some of it has to do with finding my own identity niche, or rather trying to find depth within it. It’s easy for someone to cling on to what one has left behind, rather than try and discover something new – the same way Muslim immigrants in Europe tend to be so religious. But the fact that I am able to draw so much raw pleasure from it is enough to make it a worthwhile activity or pursuit.

So with values and interests misaligned, or having grown apart over the years, but an appreciation for core language, art and customs still intact, I must re-discover Pakistan over the next two weeks. If anything seems misaligned or doesn’t quite tickle my fancy, I will continue to just cringe on the inside and try my best to smile on the outside – I must acknowledge that I am different. If past experiences with change are any indication, this confusion or resistance to change is just a phase, and this trip will turn out to be fantastic - let's enjoy the ride.

Sunday 28 August 2011

Tough decisions - Idealism in the face of a down-spiral

Readers – Two reasons why I haven’t blogged for some time now:

i)                    I have expended a good portion of my blogging time, energy and creativity writing for the Juhudi internal blog. My post received three “Sawa Kipisas” (the highest possible rating), just as high as the other serious posts on that blog. OK … I must admit though – one of those was from me for myself … but still, far exceeding my expectations. Corporate blogging or memo writing is new ground for me – hard to balance “folksy” story telling with “top down” vision and direction setting, especially when one is trying to influence change in a relatively flat and open culture (which I like).

ii)                   These are tumultuous times – I am travelling back home (to Islamabad from Nairobi), literally writing out of the Emirates Business class lounge at the Dubai International Airport. Life decisions (about how I spend the next 12 months) absolutely have to be made now. MBA applications need to be taken very seriously. Nairobi has emptied out after the summer, and there are too many missing people and too much nostalgia to make that city a happy place or situation to have just been in or think about going back to.

Plus, on my way out of Nairobi, Kenyan Immigration tried to arrest me again (third time now). I dealt with them with a bit of a flippant and carefree attitude. I just didn’t have the patience to deal with them as I did, or at least tried to, with the very first folks at Nyayo House (please read my very first post on this blog – the one which started it all). Still, whatever was left of my patience and of my soft skills prevailed, and I got out of the situation with just a few pleasant arguments.

Back in Dubai, albeit only at the airport, I am realizing that my love and admiration for the city is not “significant”. Looking out at the skyline as we were landing at night, I felt that the city was familiar, but I did not feel very connected to it (even though I have been defending and promoting it quite a bit – The contrarian that I am, I like countering stereotypical perspectives on Dubai). I will be making a proper stopover here in two weeks, on my way back to Nairobi, but I suspect that it will be more about the people I have left behind, rather than the city or the sights. The fact that the WiFi password at the Emirates Business Class Lounge is “FLYEKA380”, speaks to the obvious grandeur it aspires to. For me personally, this part of its culture is a bit of a turn-off. The “tourism video” Emirates displayed as we were landing showed this grandeur and decadence. But the “organic” beauty of Nairobi feels so much more like home – the church spires, the dark and heavy smoke from the busses, and the narrow roads with their age old trees. Still, there’s the fact that this is the only place close to home, with some form of stability and professional opportunity. Home is very fast failing as a state – I wonder if it will be safe at all to return to in a few years.

And this bring me to my final point – A good part of the reason why I am travelling back home is to find some kind of courage and inspiration, and to do some hard due diligence, on starting a social enterprise – more specifically a Microfinance Institution with a kick-ass model. If the right people are excited, and one or two tangible pieces of the model can be put in place (e.g. livestock insurance), it’s a go. I have the story line, a bit of the professional credentials and experience, and even much of the start-up capital. But, how am I supposed to feel upbeat about this when the front page headline on “The Gulf Today”, the newspaper I involuntarily received on the plane reads – “26 Pak soldiers die”? As the story goes, a bunch of militants crossed over the Durand line (the “artificial” border between Afghanistan and Pakistan carved out by the British) into a part of Pakistan today, which had previously seen relatively little conflict. They attacked a set of army and police and check-posts, killing 26 Pakistan Army soldiers and 10 police personnel. Surprise … They have ravaged 36 families. Kids who are orphaned – who will never see their fathers again. Fathers and mothers, who will have to live through the day they will have to bury their own sons. And an apathetic local news audience (populace), tired of seeing this for the past 5 years or so – I read somewhere recently that Pakistanis don’t take terrorism that seriously anymore and only perceive it to be the 4th most important issue in the country (after corruption, poor governance and inflation).

This raises the question as to whether this is the kind of place I wish to spend the next two weeks in, let alone one to three years. I am seriously upset and I seem to be a minority in being seriously upset. I am trying to swim against the tide. I fully anticipate that religious rituals this Eid will include a mullah spewing out some serious hatred (this happened last year at Eid Al Fitr in the local mosque close to my parents’ home), and that no one will be unfazed by this. But I have come off the plane after watching “Invictus”, hence the confusion. I need to draw inspiration from the actions of Mandela, which helped so radically alter the course of post-apartheid South Africa. Is there hope still? Is this at least worth a few years of personal investment? Let’s fly into Islamabad with an open mind. Let’s leave the decision open still. Happy Eid everybody!

Monday 15 August 2011

Ramblings on Microfinance


Readers – This post is an eclectic set of thoughts and facts on Microfinance. I am writing it primarily to share my knowledge (and wisdom?) on this industry, which I have acquired over the past 3 months or so at Juhudi, but also partly to find some inspiration and excitement for starting out my own Microfinance Institution in Pakistan, which turned 64 yesterday (Happy Independence Day). It’s a tough decision. It is enormously exciting on a professional level and gets me closer to long-term goals of doing my part to turn around 64 years of mismanagement and malaise. The idea of going out to deep rural areas in Pakistan, building relationships and managing people in Punjabi, building something that is high quality right from the start, and which I can call my own, and having tremendous social impact doing all this, gives me a serious kick. It does, however, carry huge risk, and comes at significant personal cost. No more hot showers, cool nights and Western friends of Nairobi (not implying that I don’t have any Eastern friends in Nairobi). I will be swimming with buffalos in the village pond, in 45 degree heat, and socializing with the village mulla (priest). I have done it before – It’s always fun for a few days, but a bit too much for an entire year, which is the minimum commitment required to build something successful (watch the Indian reality TV show – Desi Girl – http://en.wikipedia.org/wiki/Dil_Jeetegi_Desi_Girl).

You really need to start following the news and current affairs, if you do not already know that Microfinance is huge – absolutely massive. I will be a bit late to enter the game. 20 years too late, to be precise – almost an entire generation. At the world micro-credit summit in 1997, when I was only 11 years old, industry bigwigs had set the goal of reaching 100 million poor families by 2005. They set high aspirations, and have largely met them. Mixmarket.org which is a database of Microfinance institutions around the world shows 92.5 million borrowers at the end of 2009. It seems to be fairly comprehensive in its coverage so the number is probably quite accurate, barring perhaps a little bit of double counting due to borrowers who have taken multiple loans from different institutions (need to build those micro-credit bureaus along with biometric National ID systems in each country to solve this problem). If we assume a “family multiplier” of five (on average, each borrower supports five individuals), microfinance is already reaching around half a billion people, or almost 20% of the world’s poor. In Pakistan, however, a country with 70 to 80 million poor people, there are only 1.3 million borrowers. With the same family multiplier, penetration in Pakistan is at half of the global level. And the penetration in Pakistan is one-tenth of that in Bangladesh for example, which is the birthplace of microfinance, and by far the leader in terms of penetration. In fact, I think it might be fully saturated, but I do not know nearly enough to make that claim.

So there is definitely a need for me to throw my hat in the ring. Also, most microfinance institutions take an approach which focuses on ideas, or marketing to impact investors rather than rigorous operational execution. And often even the idea generation and execution is piecemeal, haphazard or trial and error like. This is the very nature of entrepreneurship, especially social entrepreneurship, but this should no longer be the case in a well-established space like microfinance. We should be able to get this right now. Yet, across the board in microfinance, we continue to see to poor or sub-optimal outcomes, even in recently established Greenfield institutions. Most of the institutions listed on databases such as Mixmarket.org seem to be losing money, or to use a more acceptable industry term, not operating at “100% sustainability”. Industry colleagues tell me that systems and processes are almost universally inefficient if not altogether broken. With a bit of my current knowledge and experience, and with some rigorous planning and foresight, I can build something which is sustainable and pristine right from the outset. My efforts may not win me an Ashoka award (Ashoka.org is an institution which provides recognition to innovators in the social enterprise space) but I can still have tremendous social impact, building high quality structures based on old or existing ideas, rather than generating new ideas, per se. Speaking of existing ideas, I have secretly been taking notes on the Juhudi model of agricultural asset backed financing, which I can copy cat, and which seems to be safer and more sustainable than traditional urban micro-enterprise finance, and perhaps more beneficial to the borrower.

In fact, what we do at Juhudi is absolutely brilliant. Instead of financing cash or working capital, which is often lacking, even in existing high return generating micro-enterprises, because of people’s poor saving habits (living hand to mouth), or due to frequent financial shocks e.g. medical costs associated with illnesses, or dowry for weddings, Juhudi adds an incremental hard asset. The asset sits illiquid on the farmers’ balance sheet and along with the loan repayment process, acts as a highly effective mechanism for farmers to save incrementally i.e. over and above what they were already generating. One illiquid asset or cow becomes two, then three and eventually four. The asset base builds up, and due to the scarcity of capital often generates an annual return exceeding 100%. Soon enough the farmer has a large and steady source of income driven by a healthy illiquid asset base. If cash was sitting there, or added to either meet the needs of an existing enterprise or on an incremental basis, it can still earn a pretty decent return, completely free of risk, (7 to 10% for a fixed deposit in Kenya), but it would probably not survive in its purest state for very long, likely spent on consumption or replacing something which should have been saved in the first place through better financial discipline. Rarely does cash provided by urban Microfinance institutions get spent on incremental investment – the real impact of urban microfinance is often overstated. This Juhudi model does, however, come at a social cost in the utilitarian sense of things. This is the classic equity versus efficiency paradigm in economic policy. Or what some also call a “Second best” outcome – still good but not the best.

So what is the best outcome? Dairy cows are at their most productive in large commercial farms, where concentrated expertise, capital equipment and good access to working capital can help extract the most out of them – most milk and meat, that is. Also, value chains are most efficient and hold most value when they are set up in a cluster (the value chain from start to end includes breeders, vets, feed providers, artificial insemination service providers, farmers, transporters, chilling plants, processing plants and end product distributors). My classic example of this is Bhains Colony (literally translating to Buffalo Colony) in Landhi, a slum in Karachi, where by some estimates there are more cows than people (think hundreds of thousands of cattle). The area produces so much cow dung, that it was a huge community health issue for many years. The dung was just being dumped into the sea – causing eutrophication, and destroying endangered mangroves, rich in bio-diversity and useful coastal protection against the rough Arabian Sea. Where there were only problems and no one saw value, the Electric Power Utility stepped in. They are investing in distribution networks to take the dung away, creating another income source for the residents, and are building a power plant where it can be turned to energy, solving Karachi’s energy crisis in a cheap and efficient manner. There is literally a market now for dung in Karachi. One kilogram sells for 3 rupees or so, according to a friend working at the Electric Power Utility.

The same, of course, cannot be done in deep rural areas of Kenya for Juhudi farmers, because the cost of building out deep rural distribution networks will be prohibitive. Dung is used locally, for other purposes, but not perhaps the most economically efficient ones in the grander urban scheme of things. And at Juhudi, we might be taking cows from efficient urban or sub-urban clusters and putting them in deep rural areas (remember – Juhudi has not added any cows to the system; it has simply taken them from one place and put them in another). Anecdotally, their productivity is lower, and their mortality rates are higher, although no one has quantified exactly how large or significant this impact is. And I believe very strongly, that if we are to create enough food to feed our growing population, we will have to take people off the land, and build larger more efficient farms with clustered value chains. I am so late on the communist central planning game as well – oh how I lack imagination and just recycle old ideas. Farmers can use the payout from the sale of their rural land and assets to acquire urban assets, acquire skills to provide urban services or build urban enterprises. There will be more food, more services and more enterprises – Utilitarian bliss – and without any serious distribution issues; a first best outcome.

This is already happening naturally or spontaneously. Or may be the invisible hand is doing it – my favorite character in Economics after the middle man, that old chap doing a thankless but darn good job. You might have heard about this, even with your skimpy news reading. The process is called urbanization or rural to urban migration. But this process comes with its own sets of issues even perils. Strong existing social networks are breaking down, there is pressure on already poor urban infrastructure and people are getting exposed to dangerous ideas or rather ideologies. But it’s not happening at the rate it should be (“should” here is not my a principled stand that it ought to be happening, but rather my expectation given the economic dynamics of the situation – the fact that the invisible hand is always hard at work). This comes back to the original problem of saving, or having illiquid assets on farmers’ balance sheets, the only way it seems that they can lead financially sustainable lives. Liquid assets e.g. cash just don’t seem to stay around for very long, often spent on consumption rather than investment, so liquidating the land can be dangerous – the same way Golden Hand Shake or severance schemes are often dangerous for urban service or industrial workers. These issues fall within the realm of behavioral economics, and I am sure someone somewhere is digging into them. In the meantime, farmers will stay on the land, our food will continue to get more and more expensive (same supply – growing demand), and ironically enough the farmers will be the ones rioting about it.

Getting away from Juhudi and my controversial and confusing ideas mixing micro-behavioral-economics with macroeconomics – one thing that most people don’t seem to understand is why Microfinance Institutions charge such a high interest rate. “We” are often thrown in the same bucket as loan sharks, or that notorious village money lender – another one of my favorite characters in Development Economics. The line is indeed fine and blurry. Compartamos, a large and highly successful consumer finance company or Microfinance institution in Mexico is often cited as a wolf, not even trying to hide in sheep clothing. They charge 70% plus to their borrowers. Grameen and SKS on the other hand, based in Bangladesh and India respectively, are clearly driven by strong social values, having passed on the efficiencies of scale to their borrowers, and charging rates in the mid-twenties, having initially started out in the early thirties. This blurriness is often opportunistically used by self-serving politicians to create a raucous and self-serve. SKS was very badly hit by a political uproar over a string of suicides which were casually linked to its lending practices. These two types of organizations show that the difference between a Microfinance Institution and a loan shark is only that of core values, and in my humble opinion, neither is right or wrong, good or bad. And high interest rates, such as those charged by Compartamos will eventually be competed out of the market, with the process only accelerated by the presence of social entrepreneurs willing to give away even more value, so the question of values might just be an irrelevant one. The loan shark might after all be an endangered species.

But often the difference between loan sharks and Microfinance institutions is cited as the “recipe” of group lending or group guarantee, which is an effective way of leveraging social networks and peer pressure to lend to those who have no collateral to offer. This is not true, because loan sharks have started using group structures as well – because they work just as well for profiteers. It’s also not the difference between McDonald’s and the corner doner kebab shop. We have scale, we have systems, we have technology, and we have standardized processes, which the “individual” money lender might not, but we also have Compartamos, an institutional version of that old individual loan shark. The individual village money lender has very clearly been elbowed out of the mainstream market, the same way now that KFC has come to Kenya, quite a few mom and pop Swahili food joints will likely move into more and more obscure areas. It’s creative destruction, but just like Compartamos or SKS, it can be either used to make a fair consensual profit (nothing wrong with the profit motive), or be passed on as social value (nothing wrong with charity, especially where it retains the dignity of the beneficiary). So – no difference, except in core values. But as I mentioned earlier, our saving grace is that the likes of Compartamos will likely not be able to charge “usurious” rates forever, because if the market is too profitable, other players will enter and compete away the profit. Let all discussion or debate on the values of Microfinance be buried forever (after we build out those micro-credit bureaus and ensure that individual borrowers do not get over indebted).

Allow me to end by illustrating why a Microfinance institution charges 30% to 35% on average where as a commercial bank will charge an average customer less than 10%. Please refer to Exhibit A, a breakdown of the economics of a typical Bank vs. Microfinance Institution.


The short answer is that they both typically make around the same returns, Microfinance making a slightly higher return because it is perceived to be more risky, and thus able to hold or attract less leverage – borrowed money. Because the cost of Microfinance is much higher and has to be passed onto customers, Microfinance ends up charging a higher rate. Basic industrial economics teaches us that the costs just about cover the interest rate, leaving behind a “fair” return – as one would expect in a well-functioning and healthy competitive industry (the same way the loan shark will not survive). But what are these cost drivers, and why are they so different? For any financial institution, there are fundamentally four drivers, shown in Exhibit A, and banks are able to keep each one of these lower than Microfinance institutions.

The largest difference is driven by driver III, which is the distribution or service cost base. Banks typically have a fixed sales and service network, and customers typically walk in to buy products or to get served. In fact, the average bank customer does not make in-person contact with their bank that often. I learnt in some of my consulting work serving financial institutions that for the average banking customer, face-to-face contact only happens around twice a year after the initial sale. The brick and mortar model is coming to an end. The rest of the contact is through highly efficient call centers, where service providers can be packed in, both across space and time (please wait for future blog post on Physonomics) and customers can be made to wait. Other efficient channels are ATMs, self-service machines and now online. By contrast, walk-in Microfinance is unthinkable. There are people who are trying it out, and from what I know, failing miserably. Our model will not work if our loan officers do not visit loan groups at least once a month. They have to make the group dynamic function well, build strong relationships with our clients, and ensure that they know and understand that we are still around to recover our money. In fact, at Juhudi, with our deep rural model, some of our loan officers can spend up to 5 or 6 hours a day just travelling to a remote loan group meeting, unlike a bank call center employee, who is kept busy as a bee all day long.

Also, there is the classic “Base of the Pyramid” issue of small ticket size. Our loans are much smaller than those of the average bank, in fact typically just a fraction of the size, so driver III works against us, even if we were servicing our “tickets” in the same way as a bank. In fact, I strongly support partnerships between Microfinance institutions, telecom operators, mobile payments service providers, non-governmental organizations and fast moving consumer goods companies, at the Base of the Pyramid, because they help consolidate distribution, allowing for greater volume along the same channel. Some of us are very uncomfortable with the notion of a loan officer providing loans, deworming kits and shampoo sachets in the same visit. But if it is all legal and well-meaning, with clients really pulling on the shampoo rather than loan officers pushing them down their throats, large volumes of tiny ticket sizes of various items, need to absolutely be combined to make the distribution channel profitable and efficient. The Base of the Pyramid consumer eventually wins. This is what Vikram Akulla of SKS calls “Google territory”, Google making a tiny pinch of money for each ad-click, but across a very high volume of users.

The other levers are largely self-explanatory. Muhammad Yunus, Nobel Laureate and founder of Grameen, will be serious angry at me for my quantitative assumptions on I and IV. He maintains that uncollateralized loans are just as safe as collateralized ones if not safer (lever I). The data which I have seen does not seem to prove his point. Also, Microfinance loan losses are comparably low enough, so the impact on the overall economics is marginal, even if we were to use his assumptions instead of mine. He also maintains that Microfinance institutions can tap into more customer deposits, and have just as good access to savings as commercial banks (lever IV). Again, I disagree. Commercial banks with their urban foot-print, attract affluent customers who are less price sensitive. They will always be able to tap into more savings at cheaper rates. What is really helping support Microfinance though, is the presence of so many impact and social investors, such as Acumen Fund, Soros Economic Development Fund, Rockefeller Foundation, Ford Foundation, etc. which helps keep the cost of funding in the 5% to 10% range. Without these investors interest rates for end borrowers would be even higher. These guys are also helping keep the likes of Compartamos out of the game, or at least accelerating their downfall.

So has this post provided me with enough opportunity to reflect and make up my mind? Confusion (no further comment).

Wednesday 10 August 2011

End of the Euro? Rise of the Shilling?

Readers – Europe is an inspiring story. After hundreds even thousands of years of conflict and development, and more recently a couple of serious wars, Europe has learnt to co-exist, collaborate and integrate unlike any other region in the world. It is an exceptionally diverse and culturally rich place, unlike any other large country or region, which might come close in size or mimic some of the structures of governance (Yes – I am hinting towards the United States). I, as many of us do, particularly enjoy travelling around Europe on a single Schengen Visa and using the same currency across borders, which are only ever noticeable because of the change of language on the highway signs, and the change of letters on the number plates. It serves as the model for many other emerging regional blocs, and I hope one day that the SAARC (South Asian Association for Regional Co-operation) can also become a similarly strong and unified bloc. Sovereign borders and barriers, which many of you know I am not a big fan of, finally seem to be breaking down.

But there is a problem. Europe is in crisis. Over accumulation of sovereign debt coupled with continued fiscal indiscipline across many Eurozone countries, threatens to tear apart years of progress. There’s a clear North South divide, the North being highly creative, innovative and productive, and the South being comparatively a bit lazy and lacking in new ideas. Greece is where this Black Swan was first spotted in early 2010. Over a year later, things keep going from bad to worse in Greece (S&P recently downgraded Greece’s sovereign debt rating to CCC, the worst rating for any sovereign in the world – S&P are the same folks who made a USD 2 trillion error in their projections of the US fiscal deficit), and the crisis has spread across to many other countries. Many months since it started, there is still no sign of resolution because the choices are so difficult and so complicated by a combination of economics and politics.

So what are the possible choices or outcomes? Please refer to Exhibit A.


The most likely outcome at the moment is a combination of Options I, III and IV. They are still very painful measures to take, and each stakeholder seems to be muddling through putting them in place. The Greeks have been striking and protesting on the streets against fiscal austerity. They tend to take any opportunity to not work, and to start a riot (A bit like myself – I have lived there for 4 years, and seem to have been influenced a little bit by the national psyche). Angela Merkel’s popularity is taking a serious hit in Germany after a series of proposed interventions through the summer. The Germans always have been highly principled and disciplined, and seem to be pushing Greece for greater self-discipline as well. The bankers are flexing their muscles, and have many sovereign states and the EU in their pockets, sighting another potential financial meltdown. Some might call this blackmail.

In other options, Option II seems to be virtually unthinkable at the moment, but nevertheless something that many academics, think tanks and independent experts have quite vocally advocated. The argument is that the benefit of a single currency far outweighs the cost of “centralized” governance, and loss of sovereign control. But most Greeks and even Germans do not seem to see it that way. As the Exhibit shows, Option I and Option V are the easiest, i.e. the one’s without any serious red lights (based on my subjective judgement of course), but they are still not easy options. Under Option V, Greece can leave, or be kicked out of the Eurozone, and monetize its debt. It would probably still require a combination of Options III and IV to cover its existing stock of Euro denominated debt. But the disintegration of the Euro is also unthinkable at the moment, so there is a big question mark as to whether this will ever happen.

It will be interesting to watch as this plays out. I predict that it will be a protracted exercise, and in the short-term we can expect to see a whole set of half measures, without any serious effort to address the issue once and for all. As is very obvious, this uncertainty doesn’t help anyone, especially the banks and markets which will remain on edge.

In other monetary news, the Kenyan Shilling hit 95 against the US dollar yesterday. When I arrived in Kenya exactly 3 months ago, it was trading at 83 (Please refer to Exhibit B). The Central Bank blames this on “speculators”. Also, according to the press, a few bankers have been seen to be bragging about manipulating the markets to make a quick buck. I think this is horse shit. A 15% devaluation of a currency over 3 months represents a serious inflexion point, something that is usually quite common for semi-stable emerging market currencies, once every two years or so. It has to be grounded in more fundamental macro, or even more specific monetary issues, which simmer up over time, making it hard to specifically pin point cause and effect. What do you think of the root cause, and the silly political rhetoric around it? It sucks for me though. Even though my dollars will be taking me further in Kenya, I will have to spend the afternoon doing the painful work of quantifying our Forex exposure at Juhudi Kilimo and finding ways to hedge it.

Monday 8 August 2011

Diplomatic Cables

Readers - This string of fictional diplomatic cables, has become quite popular, and makes for a very interesting read, so I thought I would share it with everyone. The author seems to be anonymous, but has done a very good job structuring and synthesizing our issues.

Wonder what happened to all those Wikileaks? Weren't there thousands and thousands of cables they were slowly sifting through?

***

Memo #3 US Ambassador Robert Munter

From:   Robert Munter
            US Ambassador to Pakistan
            Islamabad, Pakistan
To:       Assistant Secretary of State
            Bureau of South and Central Asian Affair        
            Department of State
            Washington, DC
Date:     December 31, 2010
Re:        Pakistan the first quarter


Having been in Pakistan since October, I am forwarding a brief review of my first personal impressions.
1)    View about America: Survey after survey has shown that the populace at large has very unfavorable views about US government and policy. The perception in the corridors of power is very different. Given their propensity to focus on conspiracy theories most have a notion of US influence in Pakistan that far exceeds our real capabilities. Sometimes I feel as the “Governor General” from a bygone past caught in a historic time warp. From the highest office down to mid level functionaries, perception becomes reality, when it comes to viewing US as the kingmaker. This mostly helps us in stacking the deck of cards in our favor but also works against us at times when diplomacy is seen as failing. Our dilemma is that our policy objectives are incongruous with popular sentiment of the people in Pakistan. Changing this is not merely a matter of perception and has to be more than a public relations exercise. It will require a significant change in our strategic trajectory.
2)    The Social divide: Having served in Iraq I have experienced the divide between the elites and the common citizen, which is quite typical of the Middle East and South Asian countries. In Pakistan however it takes unparalleled heights. My first private party at a key ministers residence, the opulent lifestyle was in full contrast to the plight of those serving us. White gloved waiters were standing with ashtrays so that the corpulent minister and guests could smoke their Cuban cigars at will, and with utmost disdain flicker the ash at random intervals to be caught by the gloved waiters with unsurpassed dexterity. Alcohol, which is, otherwise not publicly displayed in this Islamic country was flowing from an open bar. Our hosts were shocked that most American guests did not drink.  I was taken aback at the presence of so many blond Pakistani women, on inquiring was told by our bemused social secretary about the miracle of peroxide and modern hair coloring which seems to be the fashion statement of the day for well groomed (sic) modern Pakistani women. As we pulled out to leave, the sight of an army of drivers, was something to behold, huddled in the frigid night until the wee hours, for their masters to terminate their fracas. Service is legitimate but this smacked of servitude, opprobrium reminiscent of attitudes of European aristocracy and our own experience with slavery.
3)    Hypocrisy a new dimension: I was stunned to hear form a very senior political functionary about US interference in the internal affairs of the country. When pointed out that this interference could be curtailed if the Government of Pakistan would refuse to take Billions of Dollars in US aid annually, his response was that monies were for services rendered in the fighting terrorism. Purloin of developmental funds to support the prodigious lifestyle of the ruling elite seems to be the normative. This can be only rationalized as a self-entitled narcissism of a collective of people with a rapacious appetite to loot the country.
4)    The common man: My contact has been limited but even with limited exposure they continue to amaze me. In abject poverty and mired in the maelstrom of illiteracy they display a dignity and authenticity that is in stark contrast to the capriciousness of the pseudo westernized elites. Hospitable to a fault and honest despite being in the vortex of poverty the common everyday people of Pakistan display great ingenuity to survive against formidable odds. A gristle of the soul, that must come from a past rooted in spiritual life of a different sort.
5)    Democracy: In Pakistan democracy has taken a dimension that borders on mockery of true representative government. The elected representatives come almost exclusively for the elite and privileged class. Rather than representing the populace they are more like local regional ‘viceroys’ representing the federal government and their own vested interests in the regions. Most are in politics not with a sense of public service but more to maximize the opportunity to make money, which they do with total disdain. The mainstream political parties are oligarchies controlled by the founding patriarchs or their heirs. One wonders if this is the model, we seek to perpetuate? Given my background as a history professor I have my druthers.
6)    Alchemy of change: The polarization in the society makes significant change likely in the near future but given the deficit of leadership and organization it is not inevitable. This situation is unlikely to be remedied in the short term. If such a leadership were to emerge then conflict between the polarized segments would likely ensue. Under these circumstances we will not be able to count on the Military as a stabilizing force. The Military though a disciplined and well led, is a egalitarian body with much of its leadership and rank coming from middle, lower middle and poor classes. Their support of any move to perpetuate the rule of the elite will be at their own peril. The current military leadership is unlikely to prop the existing structure if such a conflict was to occur and possibly may even be catalytic toward such change. This is in stark departure form the past.

     Pakistan is a fascinating place the contradictions are glaring but the promise is great,ironically what may be good for Pakistan may at least in the short term not be good for furtherance of our policy goals. We need to take a long view and it may be worthwhile to cut our losses, uncouple from the ruling elite and align our self with popular grassroots sentiment in the country. This would change our perception in the short term and when change does come we are for a change will be on the right side.

***

Saturday, December 11, 2010

Memo #2 Indian Ambassador to Pakistan

From: Sharat Sabharwal
          Indian High Commissioner
          Islamabad, Pakistan
To:     Ministry of Foreign Affairs
          New Delhi, India
Subject: Pakistan Sate of the Union-2010
December 10, 2010


End 2010 summary analysis on Pakistan is being forwarded. The detailed report is being sent separately by diplomatic pouch.
The Government of India (GOI) strategic planning directive for Pakistan of 2000 clearly states our aim; to undermine the Pakistan Sate internally and externally with the intent to weaken it to such an extent, where it does not pose any further threat to GOI regional goals.  With this in mind we have executed a cohesive plan to internally disrupt the country and to undermine it on all international forums both overtly and covertly.
 I am pleased to announce the Sate of the Union of Pakistan at the end of 2010, is currently most conducive for the furtherance of our goals. Our efforts over the last sixty-three years seem to be coming to fruition. The country has never been more polarized, lacking in leadership and economically weakened. We anticipate that the time is nearing when we will be able to achieve our strategic goals without use of overt military force. This will be the highest tribute to the teachings of ‘Chanakya' which we have so assiduously pursued.
Pakistan was created ostensibly in areas where Muslims were in majority. From its inception there was a divergence of goals resulting in a clear division. This dichotomy has persisted and has taken a institutional form. The two basic divisions are summarized: -
1)    Group 1:Belonging to the mercantile classes, who wanted to protect and preserve their commercial and land interests. They formed the majority of the ruling class at partition and continue to do so today. We estimate it to be about five to ten percent of the population. To summarize, this group is characterized by being: -
a)     Mostly secularized and westernized: They do practice religion nominally and have maintained its cultural trappings to a variable extent but in essence religion to them has become a cultural phenomena and no longer holds any significant sway on their worldview. It has no relevance to what they perceive as their geopolitical center of gravity.
b)    Privileged and above law:  They are almost completely above the law; in fact they are the law. If you are part of this group you are never stopped by the police if stopped you never have to go to the courts, if indicted you almost never go to prison. They never wait in line; an army of servants and facilitators help them live above the daily grind of what life is in Pakistan for the rest of the ninety percent.
c)     Economic apartheid: This group has access to the best living conditions within palatial residential developments, gated communities with private security. They have access to the best country clubs, hotels, restaurants and golf courses. They have an inside track to lucrative jobs and contracts. They travel freely and are found shopping and entertaining more in Western and Mid Eastern capitals then in the country. It is an incestuous club, were every one has a net worth and a network they depend on. They all mutually help each other and thrive.
d)    Educational apartheid: Their children go to elite schools mostly in the Cambridge system; the government (public) schools are not even an option for them. Once they have done there ‘A’ levels the majority leaves for universities in the West for higher education where they either end up staying or return only to work at the helm of family businesses or to lucrative jobs in the private or public sector.
e)     This group is mostly Western and India centric; they have no intrinsic cultural values and have learnt to appreciate and adopt western and now Indian cultural norms as their own. Some even are nostalgic about being part of greater India and reaping the benefits of the economic boom. We need to work closely with their representatives and continue to emphasize the futility of partition. The cultural assault by Bollywood needs to continue and we need to use human rights and civil society organizations to infiltrate their ranks even further.
2)    Group 2: A segment that wanted to lay the foundation of an Islamic State to be based on the laws derived from the Quran and the practice of The Prophet Muhammad (The Sunnah). This group has mostly degenerated into a pathetic and ineffective hoard, unable to articulate a vision or strategic leadership. It can be characterized by being:
a)     Poorly educated: with focus on doctrinal minutiae and nuance, having lost track of the dynamic core of the universal message that was once a historic force and resulted in changing the geopolitical map of the world. Only a small group remains that is making efforts to revive this spirit but fortunately for us has found no traction.
b)    Divisions into sects and subgroups: with esoteric doctrinal differences, but significant difference in strategic approach. Rather than agreeing on a minimal common platform they are at virtual war with each other. Unyielding and unwilling to accommodate any divergent opinion. They lack unity and a common purpose.
c)     Absence of a cohesive and coherent alternative model: They have failed to articulate an alternative paradigm to our western developmental theory; nothing substantial that can catch the imagination of the masses.
d)    Economically disenfranchised: They mostly come from the economic under privileged class though some members of the educated salaried middle class are increasingly joining them. This is a dangerous trend and we need to develop a cohesive plan to prevent this hemorrhage.
e)     We have successively infiltrated their ranks and our agencies can instigate communal killings and sectarian violence almost at will. Our effort needs to continue to stoke the sectarian divide and prevent the educated middle class form focusing on the ideological imperative of returning to its foundational ideals. We need to prevent them from serious scholarship of their religious texts and continue to draw a wedge between them and their co religionists.


Having lost its moorings and ideological underpinning that kept it united the society has become fragmented to its constituent tribes and ethnicities. The leadership has disintegrated, and the lowest common denominator in the society has surfaced at the helm. The current so called leaders in large part are totally inept and almost universally corrupt, this combination is lethal for their country, but provides us with unfathomable opportunities.
The political parties continue to be weak, poorly lead and are mostly family run oligarchies, with the perennial quest for power without purpose, goals without ideals and family over merit. The resultant effect is dysfunctional parties that are, inept and ineffective. They lack internal democratic mechanism, which has resulted in the perpetuation of family fiefdoms. They do not have the capacity to bring about fundamental change the country needs.
The higher judiciaries has shown some independence but is stymied because of the overall weak and corrupt legal and criminal justice system, which is on the verge of collapse and does not serve the common good anymore. This has resulted in groups and individuals to take vigilante action, further weakening the writ of the state.
The real danger to the furtherance of our policy objective comes from the Armed Forces; despite our best efforts we have not been able to infiltrate their leadership. It is surprising that it derives its rank and file from such a highly fragmented polity, yet ends up in developing into a cohesive organization with common purpose. The Armed Forces are one of the very few meritocracies in the country with an egalitarian ethic and continues to be mostly well led. The greatest danger comes from its current leadership in General Ashfaq Parvez Kayani. He comes from a non-elite background and can be termed as the ‘common soldier’s general’. He has transformed the Army in the last three years form its lowest ebb at the end of the Musharaf era, to where it is now again an elite force commanding respect and veneration of the people. His continuation in the leadership position is highly detrimental to our strategy. We need to continue to make efforts to undermine him and make his personality controversial.
We have so far succeeded in creating a civil military divide but if a nexus was to form between the military and civil society, a dangerous situation could evolve which could result in galvanizing the middle class with the potential of revolutionary transformation. This would be very detrimental to our strategic aims and objectives and should be avoided at all costs.
Danger also comes from the growing cadres of youth that are idealistic and for some reason large segments of them, especially those belonging to the middle and low middle classes, still carry an ideological zeal. They could be organized and become the nidus of resistance against the status quo. We need to continue the assault on this group through our media and other surrogates to dilute their fervor and to try and assimilate them into a South Asian culture mosaic that we successfully potentate.
The corruption of the political class and bureaucracy coupled with the extravagant lifestyles of the elite will ensure the continuation of a culture of dependency, which will keep the country on the brink of bankruptcy and help us make significant inroads. We do not see this changing in the near term; no change seems possible from within the political structure. Our concern remains about a nexus between the military and elements of civil society becoming an agent of change.
We hope this analysis will help in laying the premise for the strategic reappraisal that is currently taking place; I am looking forward to participating in the dialogue in New Delhi at the end of the month.
Jai Hind

***

Thursday, December 2, 2010

Memo#1 Embassy of Pakistan

From: Husain Haqqani
          Ambassador of Pakistan to USA
          Washington, DC
To:    Asif Ali Zardari
         President of Pakistan
I am happy to report that we have finally convinced the White House to send a formal invitation to you for an official visit to the US in 2011. Sir it was not easy, they were concerned that you may be under indictment by then, by either The Supreme Court of Pakistan or by the International Court of Justice. This resistance was however overcome given your deftness in dealing with the visiting American delegation and agreeing to an expanded role for Drones and US Special Forces in Pakistan. Please accept my congratulations on this diplomatic coup de grace.
We are creating a full agenda for your visit and have arranged for meetings with several real estate agents, who have assured us that they have prime real estate properties for your consideration. Given the recession here, if I may add, it is a good time to buy.
Ms Sara Palin has also shown interest in a “private” meeting, please advice if you would like to keep it very discrete and “private” or if a combined Press conference should be arranged at the end.
Several Ex-legislators who have been “wrongfully” accused of corruption and forced to resign like, Charles Rangel, Doc Hastings, Randy "Duke" Cunningham and Marsha Blackburn just to name a few have expressed interest for you to give a seminar on: 'How to survive as a “wrongfully" accused politician'. Please advice if this will be feasible. Be rest assured we will negotiate top fees for your appearance and you will be amply compensated for your valuable time.
The State Department wants General Kayani to accompany you. They have agreed that while you are busy with the real estate showings he will be meeting at the White House, State Department and Pentagon to discuss key policy issues. Please be reassured The Defense Attaché has been briefed to appraise you of the decisions on a daily basis. This carries the additional benefit that we can keep 'The Chief' under close observation. This should assuage your fear about The Military taking advantage of your absence.
Given the past difficulties in tracking the cabinet ministers in different nightclubs, the FBI has arranged for a special chartered plane to take them to Las Vegas for the weekend. Several Casino’s have been reserved and they will have ample opportunity to get entertained and keep out of site of the media.
The Co Chairman Bilawal Bhutto Zardari has shown interest in meeting some Hollywood Celebes; please be assured I am personally making contacts and adequate arrangements will be made. We are also arranging for special credit cards to be issued by the embassy to him and the accompanying ladies for their shopping pleasure.
Since you have kindly agreed to bring some opposition members along, please remember that Imran Khan can under no circumstances be brought; he has displayed extreme undiplomatic tendencies. Mr. Nawaz Sharif has declined to attend, and Mulana Fazal ur Rehamn does not present an image we want to project. Altaf Bahi is unlikely to risk leaving his self-imposed exile, Wali Khan and his groupies are too boisterous and The Choudhary's are too incoherent. It may be advisable to consider Kashmala Tariq and Marvi Memon, they are quite benign and have  pretty faces for television. They will be pleased by this gesture and it may help in toning down their rhetoric at home.
Talking about image it will help to bring several key women members and advisors, preferable good-looking ones sans Fuzia Wahab she, as they say here in the west, 'has a good face for the radio’. We need to blunt the impression Aafia Siddiqui has created and show the positive side(s) of Pakistani women.
Please be also advised that we are arranging several meetings with the Pakistani American Community here in the DC Virginia area. They will be screened and we will make sure all miscreants are weeded out. It will not be possible as requested by His Excellency the Minister for Interior Mr. Rehman Malik, that shoes should not be allowed inside the hall. Unless you feel, it will be safer to conduct these meetings in a Mosque, in which case we will be happy to arrange. This may carry the risk of confrontation between the “Maulwi Types" and “Enlightened Moderates” and has its pros and cons. Please have The Minister of Defense carry a study on this matter; he seems to have plenty of time since the Defense Ministry is working despite his input.
Sir can I also in the end bring to your attention a trivial matter, please do remind the Foreign Minister about the issue of my extension, it is due for renewal next month.
Praying for you health, continued success and completion of your  ‘Awami’ mandate. God save Pakistan.

***

Summer Anthems


Readers – A bit of a light and lazy post this time, but nevertheless quite cultural and profound. I wanted to share my top 5 summer anthems from Africa. These have been a key part of my experience out here, mostly because they have promoted group bonding and cohesion in the Open Jakivahudi community (Open Capital Advisors, Jacaranda Maternity, Kiva & Juhudi Kilimo are 4 social enterprises based in the same district of Nairobi – We live and work together i.e. share offices and homes, under various arrangements – some of us are slumlords, where as some like myself are just slumdogs).

No. 5: Sarah Mitaru – Songea

http://www.youtube.com/watch?v=8cyyQc7Q3Gk

I first noticed Sarah Mitaru at the launch of the Acumen East Africa Fellows program, but later realized that I have also seen her perform at Blankets & Wine (a monthly open air concert and picnic in Nairobi). She quit her day job, working for a bank I believe, to take up music full time. Followed her dreams – took a risk – things I also need to be doing. Her performance at the Acumen launch was quite catchy and inspiring, especially the first song titled something like, “I am a leader”. I believe the song was composed especially for the Acumen Fellows, so it cannot be found anywhere on the internet. She’s got a great voice. Great things i.e. Afro-soul, happen when church choir skills are brought out into the mainstream / jazz music scene. It’s incredible how faith and religious institutions enrich the arts and culture.

No. 4: J Boog – Let’s do it again

http://www.youtube.com/watch?v=yXeaaIkC8sQ

This song is actually from Hawaii, but Kenya seems to have fully embraced it. It’s played everywhere, on public transport, in bars, clubs & restaurants, in taxis and cars, and even at the supermarket. The chorus is catchy, but the real gems are a little hidden in the 3 rap verses. Such rhymes as: “I call her babe … she call me boogie ; her beauty and intelligence really moves me”, and “Dis isn’t my first rendezvous in a relationship ; well-rounded graduated with love certificates aye.”

No. 3: Muthoni – Welcome to the disco (terere)

http://www.youtube.com/watch?v=e1VGVEVeqo0

This song is supposed to be a bit of a chick flick, but I still listen to it again and again, to balance out my masculinity. Muthoni is the singer, also known as the Drummer Queen. I have seen her perform twice at Blankets & Wine (a monthly open air concert and picnic in Nairobi). This one is just a bit racy and catchy. Some of the African drum beats in some of her other slightly deeper songs are sublime (she’s an even better philosopher than she is a drummer – her live performance at Blankets and Wine is always loaded with interesting thoughts and questions – all around entertainment).

No. 2: Flavour – Nwa baby (Ashawo Remix)

http://www.youtube.com/watch?v=D1DSCmqXkAo

This one’s just silly and catchy. The original song was put together by a Nigerian, and this version, which is the best and most popular one, has been remixed by a South African. I have made no serious attempt to find out what it means. “Sawa Sawa” simply means “fine fine” in multiple African and world languages, including Swahili and originates from the French expression, “ça va” which as we all know, literally means “OK”. It’s just a smooth care free way of hitting on all the ladies. My favorite part is just before the chorus: “And I go tell my mama. And I go tell my papa.”

No. 1: Jaguar – Kigeugeu

http://www.youtube.com/watch?v=FTBYc3lAnMU

I will never get tired of this song. It is the No. 1 Swahili pop anthem at the moment, and I am told that it has been around for many months already. When I first heard it, I thought this guy was just happy and singing a really catchy tune – a great song to dance to. A colleague later explained to me that it is actually loaded with thoughts and feelings – a bit of anger, frustration and sadness. It immediately struck a chord with me. It’s about betrayal and corruption and lack of trust. So important and so relevant – personally. Never fails to put me in a good and angry mood at the same time. The climax is most fun: “Bibi yangu kigeugeu – my wife betrayed me”, “pastor wangu kigeugeu – the pastor betrayed me”, “mkunga kigeugeu – the midwife betrayed me”, “wanasiasa vigeugeu – the politician betrayed me”, “rafiki yangu kigeugeu – my friend betrayed me” (my absolute favourite part), “fundi wangu kigeugeu – the handyman betrayed me”, “dereva kigeugeu – the driver betrayed me”, “conductor, kigeugeu – the conductor betrayed me”. One thing that is interesting is that there are so many Arabic words in there, which I recognize (or words which are clearly rooted in Arabic). I never realized just how much Arabic there is in Swahili, until I looked through the lyrics to this song. Provides me with a head start, and confidence that if I start learning now, I can become pretty good within a year. Just need to build up some sort of discipline to get started.

Tuesday 2 August 2011

Dysfunctionalism, Adventures in the very heart of ; Service excellence, Examples of


Readers – As some of you know, my phone got taken from me over the weekend. I was deeply attached to that piece of machinery. Wisdom from the wise tells me that I should not be attached to material possessions. But that phone was more than piece of plastic and metal to me. I miss it. In fact, I miss it a lot. I miss the sound of those little alerts I received, whenever I was sent a text, Whatsapp or Google Talk message. I miss all those times typing replies on that tiny little on screen keyboard, almost always making a typo, in spite of trying to type with the very tips of my fingers. I miss watching YouTube videos on the move, anything from a music video to a TED talk. I miss those Angry Birds, with their trajectories and their angry noises. Their celebrations as they destroyed all the happy piggies, and moved onto the next level.

Readers – I apologize for drowning you in this deluge of sorrow. I have tried to hold it in for the past 4 days, trying to deal with this setback in an emotionally intelligent manner. But as I put this in writing, I cannot help but lose control and share my pain and sorrow with the world. If only those four or five evil men had not jumped into our “matatu” (A matatu is a standard Toyota minivan, the main mode of public transport in Nairobi and around Kenya. It is usually overcrowded, just like other minivans in other parts of the developing world. What does distinguish them, however, is that they often play great African music, and have some entertaining stickers or quotes plastered on them). If only I had the presence of mind to remember stories from friends and friends of friends, about similar sketchy characters, using seatbelts as a diversion to swipe pockets on matatus.

Perhaps this is my contribution to Nairobi. A tax-like payment I have to make for the right to acquire valuable life experience out here (with the benefit of avoiding all the annoying paperwork, which I would have to complete in other tax jurisdictions, with better “law and order”). Or perhaps those sketchy guys deserve my phone more than me for outsmarting me (so self-absorbed – yet so satisfying). But no! None of this makes any sense! As those Angry Birds have taught me, I must not try to rationalize this heinous crime. I must seek revenge. My emotions need to be channeled from sorrow to anger. I must focus.

Which is why, I have been running around the offices of the Police, the Crime Investigation Department (hereon referred to as “CID”) and Safaricom (the incumbent mobile operator in Kenya, with whom I hold or rather held my cellular connection). It’s quite a bit like Angry Birds Level 2, but the main characters are myself and Benson (the famous taxi company owner and part-time hero from my very first post). As technology has advanced over the years, these phones have become easy to track. Each call made in Kenya is logged, with an IMEI number, a unique serial number identifying each phone, and the SIM registration details, mapped onto a Kenyan National ID or an International Passport. If the Police, CID or Safaricom want, they can help track this phone down, and identify anyone who has been using it. If someone has received it as a gift or bought it second hand, they can help trace where they got it from. There’s a decent chance that this crime CAN be solved.

Except that there is a good chance it WON’T be solved. Public services out here in Kenya are broken or dysfunctional, just like they seem to be in most developing or even developed countries. I sound like an enormously cynical, pessimistic and jaded young man. I am a complete basket case for someone who is only 24 years of age, with only 4 years of professional experience. I am supposed to be the fresh young one who brings all that optimism and idealism into every situation. But few people will have the moral imagination or plain guts to tell me to be an idealist or an optimist in this situation. In all my personal and professional experiences, I have witnessed so much “dysfunctionalism”, that I must break it down and entertain and educate you with some examples. In what I have seen, it is driven by three core issues at the level of the individual, which then often work their way into institutions and their culture, often eventually bringing down the entire system:

I)                    Apathy

II)                  Lack of integrity

III)                Lack of competence

It’s not just public services which are broken. Private services are also broken. Statistically, perhaps not as much, but nevertheless, more than they should be or rather are perceived to be. “Dysfuntionalism” is ubiquitous. It’s a disease that afflicts virtually every part of the service sector. The morning my phone was taken from me, a kind man on the street advised that I visit the Safaricom office and report the incident immediately, so that I can get some quick help in tracking it. The Safaricom service center was only 2 blocks away, and I had some very understanding friends, who agreed to wait for me at the bus stop, while I went off to make this service request. I arrived in front of the Safaricom service center at 8:55 a.m. The plaque on the wall listed the working hours as 9 a.m. to 6 p.m. I was in luck. The office was set to open in 5 minutes. The only issue, however, was that there was a long queue literally going all the way around the building. There were at least 500 customers in that queue. If I had joined the end of the queue, I would not have been served for several hours. So I went to the start of the queue and shared my sad story with the gentlemen standing there. They were kind people, who sympathized with me, and offered that I cut in front of them.

Great! The service center was set to open in 5 minutes, and I was the first one in line. Anticipation heightened as the clock struck nine. The Safaricom employees were inside. Some of them were preparing for the work day, sorting through paperwork, some of them were having breakfast, some of them were on the phone, and some of them were just sitting idle. The store was not open though. Its multiple doors were locked, reinforced with multiple security bars. The clock turned five past nine. Nothing changed. The Safaricom employees were still making calls inside, having a nice chit chat, clearly generating a lot of business for Safaricom. Left pocket, right pocket, and back to left pocket, as I like to say. The Safaricom customers outside, however, were starting to lose patience, which was clearly not good for business from Safaricom’s perspective. The clock turned ten past nine. This little adventure had already taken a bit longer than expected. I was now constantly thinking about how my friends might be worried about me, or worse not be happy with me for making them wait so long (Remember – I had kept them waiting at the bus stop? Please reread previous paragraph). I started snapping my fingers as the tension and impatience set in. The clock turned fifteen past nine. Nothing changed. I signaled to folks inside with a polite smile, pointing to my watch, that it was time to open up. They signaled back asking me to wait and be patient.

The clock turned twenty past nine. Nothing changed. I put my puppy dog eyes on and started staring down the folks inside, trying to induce some kind of care or consideration. This worked on the security guard, who came over and unlocked one of the security bars. They might finally be opening up, I thought to myself. But after removing the lock he went right back to his chair, and opened up a newspaper, blocking any direct eye contact with me. Five minutes later he came back and unlocked another security bar. A slow ten minute “striptease” started, where he slowly and as leisurely as possible, unlocked lock after lock, removed shutter after shutter and finally opened the last door. What happened after this makes for the greatest anti-climax.  The lady who served me listened to my story, and simply asked me to go to the Police Station and obtain a Police Abstract before she could help me obtain a replacement SIM. The Police Station was another adventure in itself, and which I experienced this afternoon. The Police is clearly not the only institution in Kenya suffering from “dysnfunctionalism”. Safaricom, the most respected company in Kenya, has a service operations unit, which is suffering from some serious apathy. This is a private company which generates ginormous profits in a competitive sector. I have never seen any other company in a competitive sector which does not open on time, and on top of that does not care at all about 500 customers queued up outside its premises. It’s seriously dysfunctional.

This afternoon at the Kilimani Police Station, the issue was not just apathy, but a combination of apathy and lack of integrity. There were three gentlemen sitting in the Abstract Records section, with no clear hierarchy. They kept redirecting me to one another, around the room. When one finally decided to settle down and write the abstract for me, he stated very clearly that: “I don’t feel like doing it. I am very tired.” He asked me a bunch of questions about my background, and about my story in a rude and skeptical tone. As some of it unfolded, he got excited and tried to arrest me (again! – please read my very first post if you haven’t already) for being in Kenya for 3 months, and working. I told him in a bit of a flippant tone that I wasn’t working, and that I was just a consultant with a valid special pass until November. He let it go and I finally received my abstract.

My all-time favorite customer service experiences have taken place at the Serena Hotel in Islamabad. It’s an absolutely gorgeous hotel, built in traditional style and set in several acres of lush landscaped gardens between the Rawal Lake and the Margalla Hills. One couldn’t ask for a more perfect setting. I have had the pleasure of staying there several times on my consulting assignments. The only issue is that one has to set the correct service expectations, against the backdrop of this “physical” quality or rather sheer beauty which the hotel possesses. One can order tea in the breakfast buffet, but one would have to be a really self-entitled prick to expect that they will actually bring it. I was sitting in the business center once, and asked one of the waiters to bring me some coffee. He went and instructed another waiter to bring me some coffee. An argument soon ensued over who should go and fetch the coffee, right in front of me. The arguments were as compelling as: “I did it last time – it’s your turn to do it now”, versus: “It’s your job not mine”. It got really loud and there was clear deadlock, so I had to step in, telling them that I would rather walk to the coffee shop and fetch it myself.

But my all-time favorite Serena story is that of one of my teams chilling on the top floor of the Nazara Lounge, sometime around mid-night on a quite weeknight. We were enjoying a few drinks and sipping some sheesha. The place is very nicely decked out, and provides great night time views of the city. It’s a great place to get some late night work done, or to create some lifelong team bonds, or do both. One of the Partners on the team was quite relaxed and had his feet up on the table. The security guard, who was walking around on patrol saw this, and came around to us. He instructed the Partner in these exact same three words: “You – Sit properly”. Partner was in shock, and could not do anything else but oblige. This has to be one of the most surreal service experiences of my life. I have many more stories from the Serena, which in the interest of space and reader interest, I will not be sharing in this tiny blog. The point I am trying to make is that the Serena has some very serious service issues.

Now, I don’t think that the service staff at Islamabad Serena are apathetic or lacking integrity. It is after all a very expensive hotel, and part of the “Leading Hotels of the World”. One wonders why then they have these service issues. If I were to just scratch the surface and state a symptom rather than a root cause, I would tell you that they are plain and simple incompetent. They are clueless. They just don’t get it. But if we dig deeper, and try to find the root causes, there can be a few explanations, some of which are controversial. These employees haven’t been screened properly (proper interviewing and psycho-metric testing is often overlooked, especially in these crucial “moment of truth” service jobs), haven’t been trained properly, and are not held accountable for their actions. The accountability part does not just have to do with having a good system of complaint logging and follow-up, or positive re-enforcement e.g. through having a positive feedback channel and an “Employee of the month” type of scheme. If anything, I think the Serena has exactly the same such systems as any other good hotel.

My rather controversial hypothesis has to do with the fact that the Serena, which is owned by the Agha Khan Development Network, which in turn in is owned by Prince Karim Agha Khan, the spiritual leader of the Shia Ismaili Muslims, gives employment preference to Ismailis. Many of these Ismailis are from very poor and disadvantaged families in Chitral, a deep rural town in Northern Pakistan. These individuals are not at all exposed to foreigners or international standards of service excellence. They don’t do a good job of, or any sort of job at all, in screening their staff not only because they are selecting from a tiny pool, but also because they are not looking to look for the right people. Also, they shudder to hold them accountable or fire them, because these individuals come from such poor and disadvantaged backgrounds, and are part of the Ismaili community. How does an institution like the Agha Khan Development Network balance a social mission with a profit or service excellence motive?

But the root cause for incompetence does not always have a structural cause, with a clear top-down management remedy, as I have outlined for the Islamabad Serena or the Agha Khan Development Network. A friend of mine recently went to a nice small restaurant in Nairobi where “the customer is never right”. She ordered a glass of dry white wine. What she received tasted sweet, so she asked the waiter to take it back, and bring her what she had actually ordered. Instead of bringing out a fresh glass of dry white wine, the owner came out with a bunch of wine bottles, in person and started giving my friend a lesson in wine tasting. Realizing that the owner was not willing to budge, my friend had to accept that she was wrong and settle for her glass of sweet wine. Now, one does not expect a small family run restaurant to suffer from “dysfunctionalism”. It’s the most perfect example of actions and personal outcomes being in such perfect alignment, it makes the sun, moon and earth look misaligned in a perfect solar eclipse. Apathy or lack of integrity cannot even enter the hypothesis tree in such a setting. Clearly the owner lady was incompetent, driven by a dose of craziness. No other explanation needed. Just plain cluelessness. I was in Uganda a couple of weekends back, and we were never served a meal at any restaurant in less than two hours. And these were some of the best restaurants in the second largest town in the country. Clearly they were suffering from nothing else but pure incompetence.

This brings me to my final question. Who actually gets it? This is an important question, because the world, especially the emerging world, is moving more and more into the service side of things, away from agriculture and manufacturing.  In the developed world, service jobs are becoming increasingly difficult to protect, as “The world becomes flat”. Technology is making borders irrelevant (please await a future post where I tear apart the Nation State – I might also touch upon immigration and labor protectionism). This is potentially the great big leapfrog in cross country convergence, and we are already seeing countries like India, Vietnam and Egypt taking advantage of it. I can try to answer the question with a couple of examples.

The ultimate example of service excellence comes from the “Geisha”. Yes, the female Japanese companions and entertainers, who are highly skilled at everything from dancing to making deep meaningful conversation. In fact, they are so good, that some of my consulting colleagues, who were part of the Service Operations Practice, were actually flown to Japan for a training, to learn directly from them. I wasn’t one of these lucky individuals, but I think the answers are simple. Service excellence is deeply institutionalized. A geisha knows her destiny from a young age, and is learning everything she needs to know (e.g. using conversational bridges to move a conversation into greater depth), and also developing the right mindsets and values (e.g. it is not cool to be apathetic), within the institution of the trade. This of course is buttressed by strong top-down structures, a combination of Japanese hierarchy, and plain matriarchy.

The sub-continental equivalent of the Geisha is the “tawaif”. Wikipedia defines a tawaif as: “A courtesan who catered to the nobility of the Mughal Empire.” The tawaif was portrayed in the epic Bollywood movie “Devdas”, a plot involving a crazy young alcoholic man, who couldn’t deal maturely with the pain of love, and ended up committing suicide. That movie did not capture the full essence of the tawaif, her pride and joy in doing what she does so well. It just highlighted deep rooted social stereotypes against them. From what I know, the tawaif is an extremely important cultural institution in the old sub-continent. In the Mughal times, every teenage boy from a well off family was sent to a tawaif, and learnt “tameez” and “tehzeeb”, literally translated to “respect” and “culture”.

I wish I had the good fortune of having been sent to a tawaif. Not only would I not struggle to read and understand Urdu poetry, as I do day after day, but I would have also learnt the fine art of making extremely eloquent conversation. If she had the patience to work with me, she could have also taught me to write my own poetry or ghazals, which could have been potentially transcendent. It would have been both educational and entertaining (just as my blog already tries to do for its readers, but in prose). Over the years, however, the British arrived in the sub-continent and uprooted old cultural practices, in particular those from the Mughal era. The tawaif eventually morphed into the ugly western transactional version, focused on just one goal, where service excellence holds absolutely no place, let alone an institutional or cultural foundation. Like any good blog post, social science book or academic thesis, I will conclude this one blaming colonialism for our troubles.