The New York Stock Exchange (NYSE) holds 5% in the 16-year-old National Stock Exchange of India (NSE); Deutsche Borse of Germany and Singapore Stock Exchange hold 5% each in the Bombay Stock Exchange (BSE), one of Asia’s oldest exchanges.

All around the globe, most intensely after 2006, in response to increasing international competition there has been a wave of stock and derivatives exchanges becoming publicly listed companies, including the NYSE in 2006, South Africa’s exchange (JSE Ltd) also in 2006, the two largest Indian exchanges, and the New York Mercantile Exchange, Inc. (NYMEX) among others. In the derivatives markets, Eurex, established in 1998 with the merger of the German derivatives exchange (DTB) and the Swiss Options and Financial Futures (SOFFEX) is one of the world’s largest derivatives exchanges and the leading clearing house in Europe. Owned by Deutsche Borse AG and the Swiss Exchange, Eurex and International Securities Exchange (ISE) announced an association in 2007.

A report published by the OECD states its positive view on the path that exchanges have followed lately since being listed on a stock exchange is likely to improve the value of exchanges, as they are urged to create profits for their own shareholders through improvement of their structure to operate more efficiently. In doing so, exchanges operate more and more in a business-like model.

International competition has resulted in an increasing number of demutualized exchanges making it necessary to reevaluate the extent to which exchange consolidation fits within the traditional theoretical approaches applied to international securities regulation. The roles of these exchanges have changed within the international regulatory participants and they have acquired a more active participation in the convergence of international securities regulation. Therefore, it is possible to say that cross-border exchange consolidation is shaping the path regulators are taking with respect to international securities regulation. Nevertheless, securities regulation will always remain bound by national borders in certain important aspects.

As globalization reaches higher degrees and capital markets become more increasingly interconnected, the international securities regulatory landscape undergoes important changes in response to new challenges and the greater mobility of the exchanges. As they start to operate more as corporations in search of higher profits and respond to their pro-profit requirements and to shareholders demands in a more entrepreneurial way, the self-regulatory role of the exchanges is a means towards achieving higher corporate governance standards and it has started to walk side by side with cross-border regulations.

The greater international competition among exchanges has contributed to a movement of exchanges demutualization and consolidation around the globe, allowing them more flexibility and dynamism when answering to different players’ demands, such as the ones exerted by their new shareholders.

In order to better drive their business and obtain better position when compared to competitors, the exchanges have had an influential role in the determination of standards and regulations, especially related to foreign listings and foreign issuers’ disclosure requirements. The more international standards walk towards convergence, the more cross-border exchanges increase their role in shaping the decisions made by the regulators.

No Comments »

CapitalConnect is an online marketplace that allows social enterprises, institutional lenders, and investors worldwide to communicate with one another, initiate financial transactions, and analyze market trends. Based in Gurgaon, India, that is where I spent my summer of 2009.

Launched in July 2008, its objective is to increase capital flow into the development sector by tackling/addressing problems of information asymmetry, aiming to provide social enterprises with access to the capital they need – no matter their size, location, or familiarity with global financial markets.

Recent trends in the development and growth of EDA CapitalConnect emphasize the increasing importance of the social enterprise space in enabling low income producers to improve their lives. In order for the social enterprise to achieve financial sustainability it is important to have a detailed business plan.

The main objective of the business plan is to prove to the venture capitalist that the company and the management team have the ability to achieve their goals within the proposed schedule. The real value of doing a business plan is not necessarily in the completed document, but in the process of research and thinking about the business, ideas and assumptions in a systematic way. The act of planning helps social enterprises to think things through, study and research when they are not sure of the facts, and look at their ideas critically. A business plan will help social enterprises clarify their goals and focus on defining every detail of their business. It should be organized, complete and factual.

It should be prepared by the company management and it should explain the nature of the company’s business, what it wants to achieve and how it is going to do it. It should include challenging but achievable goals.

“While creation of the business plan should be a group effort involving all the principal players in the company, the actual writing of the document should be a solo effort. And ideally the CEO should do it so they know the plan by heart. It’s very difficult to cut-copy-and-paste several people’s sections and come out with a good plan” (Guy Kawasaki).

To assist CapitalConnect’s members in this task, we have created a business plan template that can be used by social enterprises. If you are interested and would like more information about it, please contact me at erika@edacapitalconnect.com.

No Comments »

Proud students of the Fletcher School gathered in front of TVs as the night got colder in Boston, to praise and honor the Daily Show’s guest on September 22. Born in Iran, Vali Nasr accumulates the titles of professor at Fletcher, adjunct senior fellow at the Council on Foreign Relations, senior fellow of The Dubai Initiative at Harvard University’s JFK and advisor to Richard Holbrooke, a key US diplomat.

Author of “Forces of Fortune”, Prof. Nasr believes that a prosperous Muslim middle class will bring stability and democracy to the Middle East, mirroring the transformations that took place in the modern West. Worried about future terrorist attacks, this leading thinker about the Middle East and the Islamic world brings into the main state a religious, but capitalist middleclass-based force. According to him, the rise of capitalism and trade were responsible for the success of modernity and democracy and market-based economies in the West. He believes that these same forces will also transform the Muslim world.

Vali Nasr cites the example of Turkey, where a religious businessman is directly doing trades with European manufactures and knows that jihad might have negative effects on his business. The market and self economic interest exert important pressures into this powerful emerging class. However, in order for them to obtain reasonable tariffs and be able to negotiate internationally, the American Congress must cooperate. It is necessary to sacrifice things and provide open markets for goods that would encourage economic growth in the Muslim region.

The modern Iranian businessman, be it a religious person or not, is willing to play by the rules of the market. In past generations, the West was a synonym of morals and values, and this thinking has given way to a more money centered ideology. The decision to modernize now is completely business and economic oriented. Being westernized does not mean that secularism is good or bad, or that the Western is cool. It is simply the way by which they can have a more active presence in the economic field. Important to remember that they are not necessarily our friends, but they are willing participants in the economic global order.

Prof. Nasr has contributed to The New York Times, The Washington Post, and Time and he has appeared on Anderson Cooper 360, The Situation Room, Fareed Zakaria GPS, The Today Show, and Charlie Rose. Also written by him, “The Shia Revival” was a New York Times bestseller.

No Comments »

Credit: Berkman Center Website

Tonight I had the privilege of attending a talk hosted by the Berkman Center and IDRC on the role of technology in human development. The panelists included two Nobel Laureates: Amartya Sen, Professor of Economics and Philosophy at Harvard University, and Michael Spence. They were accompanied by Clotilde Fonseca, Founding Director of the Costa Rican Program of Educational Informatics, and Yochai Benkler, Berkman Professor of Entrepreneurial Legal Studies at Harvard.

The discussion started off on a high note, with moderator, Michael L. Best, asking tough questions about whether mobile phones are truly good for human development, or whether they create more problems than they solve.  He even staged a mock phone call from his mother, exclaiming afterwards, “This is tyranny, not freedom!”  Sen, who is as endearing as he is brilliant, answered with the analogy that although better nutrition may make men better able to commit domestic violence, we still believe that nutrition is a good thing.  In the same way, despite complications, expansion of information technology is essentially positive.  Spence followed by stating that the mobile phone is providing the inputs that allow people to participate in aspects of development, such as finance, which they had not been able to before, and Fonseca noted that they provided the possibility of solving problems immediate to you and your community. However, there is no proof yet that this is sufficient for knowledge acquisition or learning, which are at the heart of the development process.

The key takeaway, I believe, was that the mobile phone is not a panacea and that we cannot view it isolation to other development goals.  As Spence pointed out, if you want to empower people in the rural areas, build roads for them. Unfortunately, this meant that the end of the conversation was focused on environment, energy, gender, infrastructure, and entrepreneurship…all of which are important, but diversions from the topic at hand.  I would have preferred to hear more about the risks of promoting technology as a strategy for human development, and how social change organizations might mitigate these risks and best utilize new technologies. That being said, the panelists offered important and honest insight, and reminded all listeners, whether they were watching in the room or in cyberspace, that although there is no silver bullet to development, new technology can work to positively influence issues from corruption to microfinance.  Mobile phones may have come a long way, but we are not there yet.  Innovation must continue, telecommunications companies must lower costs, and data must become more widely available.

It is also worth mentioning that Fletcher alum Joshua Goldstein ‘09, helped to moderate the event by fielding questions from the Twittersphere.  More coverage of the event can be found on Twitter with the tag #idrc09.

No Comments »

ISAF Commander, General Stanley McChrystal just released his highly anticipated initial assessment of the situation in Afghanistan. In his brief, Gen. McChrystal does not shy away from the role media plays in the conflict against Afghanistan’s insurgencies.

Appendix D of the report covers the use of media and strategic communications (StratCom).  According to McChrystal, “[t]he information domain is a battlespace, and it is one in which ISAF must take aggressive actions to win the important battle of perception.”  This explicit media manipulation may dishearten some but is likely critical for any chance of success to occur within an operating environment like Afghanistan.  With that being said, the disadvantages ISAF has regarding message delivery are still exceptionally high.

As the report notes, “[t]he use of traditional communications to disseminate messages must be better exploited using both modern technology and more orthodox methods such as word of mouth. These messages should be delivered by authoritative figures within the AFG [Afghan] community, both rural and urban, so that they are credible. This will include religious leaders, maliks, and tribal elders.”  But this task may be more difficult then it seems, considering the lack of legitimacy afforded to the Afghan government and the strength of the insurgents message of defiance to foreign occupiers. Add to this, ISAF’s deficient ability to speak local languages and dialects.

McChrystal’s stated StratCom objectives include efforts to discredit and diminish insurgents’ capability to “influence attitudes and behaviour (sic)” of the Afghan population.  Additionally, McChrystal would like to advance security and stability by developing a “sense of ownership” between the Afghan government and its populace.  But before this occurs, McChrystal notes that the operational culture of ISAF must reflect “unity of command” and “unity of effort” from the international community.  These are all tasks which are easier said than done.

In this increasingly controversial war, presumably General McChrystal is cognizant of the limitations that strategic media has on world opinion.  While he states that “coherent and rapid messaging” are necessary to promote the “single ISAF ‘brand’ to multiple internal and external stakeholders,” he must also be weary of feigning opinion if operational difficulties are underplayed or misrepresented.

No Comments »

Last week, the Senate Committee on Foreign Relations met to discuss the war in Afghanistan.  Two hearings titled Exploring Three Strategies for Afghanistan and Countering the Threat of Failure in Afghanistan were intended to address how America should proceed in Afghanistan.  Presiding over the hearings was Massachusetts  Senator John Kerry who commented in his opening statements that the US lacked “realistic” goals in Afghanistan.

“I am concerned by where we are today in Afghanistan – about the rising number of casualties among our troops and those of our allies, about the deeply flawed presidential voting that took place, about the impunity with which drug traffickers operate, and about the rampant corruption undermining the faith of Afghans in their government and ours.” Senator Kerry went on to say, “most of all, I am concerned because at the very moment when our troops and our allies’ troops are sacrificing more and more, our plan, our path and our progress seem to be growing less and less clear.”

At issue during the hearings were the force structure required to prevent Afghanistan from once again becoming a terrorist sanctuary.  To this end, the military has adopted a “population-centric” counterinsurgency intent on broadening service-provision to Afghan citizens in order to win their allegiance.

The new counterinsurgency approach disallows US military personnel from taking actions that could cause civilian casualties.  But this new mission requires a larger US presence.  In one year, the US has doubled troop levels in Afghanistan, up from 30,000 in 2008 to 62,000 today.  Unsurprisingly, more NATO troops has resulted in more NATO casualties – with last July and August being the two deadliest months for coalition forces since the war began.

The US faces a difficult mission if it so chooses.  Afghanistan suffers from nearly intractable corruption in one of the world’s most economically undeveloped countries.  Opium production accounts for 90% of the world’s supply and profits drug dealers and insurgents alike – it also employs much of the country’s agricultural workforce. Traditionally, a tribal-based country, the Karzai-led government has tried to centralize many functions of government.  And the recent elections, marred with allegations of fraud, have further de-legitimized the US-backed government in the minds of many.

For the hearing Exploring Three Strategies for Afghanistan the Committee heard comments from three witnesses with different perspectives about how to proceed forward in Afghanistan.  John Nagl, president of the Center for New American Security, argued in favor of an increased US troop presence.  While, Rory Stewart, director for the Carr Center for Human Rights at Harvard, argued for a “light footprint” strategy.  Then Stephen Biddle, senior fellow on defense policy at the Council on Foreign Relations, suggested a middle-of-the-road approach.

John Nagl testified that 600,000 security forces would be needed to beat the insurgency.  Nagl said that eventually 2/3 of the security forces would be Afghans, but would still require about 100,000 more NATO troops.  From Nagl’s statement, “the current end-strength targets for the Afghan National Army and National Police are 134,000 and 82,000 men, respectively, not nearly enough to provide adequate security in a war-torn country of over 30 million people with very rough terrain.”  Thus to meet Nagl’s recommendation, NATO forces would need to train nearly 200,000 more Afghan security forces.

In contrast, Rory Stewart argued for a narrower mission that relied upon a smaller US footprint focused on counterterrorism and development aid. Stewart concluded by stating US objectives should be limited and achievable over the long-term.

While Stephen Biddle’s testimony focused on preventing Afghanistan from becoming a base for terrorists and destabilizing Pakistan.  Biddle argued for a moderate troop increase and a reevaluation of the costs and likelihood of success.

No Comments »

One of the amazing things about Fletcher is the ability to take advantage of the resources available throughout the Boston area.  Today, I was sitting in my Technology and Development class at the Harvard Kennedy School, listening to a guest lecture by a professor from MIT, Dr. Alice Amsdem.

Dr. Amsdem’s argument is that all developing countries are following two dominant role models: Japan and East Asia, which grew through import substitution followed by export-led growth, or the OPEC model, which allowed the Middle Eastern countries to develop using oil wealth. For example, the countries of Latin America, including Argentina, Mexico, and Brazil, have strong oil companies that are becoming more like OPEC through nationalization and regional cooperation.

The key lessons from both of these role models for development are that diversification is key, and that countries have to first establish a professional class of managers in order to grow. Developing countries are in the process of learning, and therefore need experience.  The main problem with Africa, the argument goes, is that they do not have the experience to be accepted into the “inner-circle” of either of the two models of growth.  They can gain this experience through reverse brain drain (whereby citizens are educated abroad and then return home to work), and through venture capital and private equity.

I posed the question to her as to whether this learning can take place through the entrepreneurs and technological innovators that I have met and worked with in Africa.  There is so much talk in  the development field today about social entrepreneurship.  Her response was to show me a graph that she had made using World Bank data, which unfortunately I don’t have access to for this blog post.  The graph showed that in the past 20 years, poverty levels have decreased drastically in every region other than Africa.  Social entrepreneurship is not working.

My classmate and I talked about this after class.  Could it be that social entrepreneurship and microfinance are just band-aids and short-run solutions that are not contributing to overall economic growth?  My classmate, Saori, pointed out that there are innovative entrepreneurs and necessity entrepreneurs.  We cannot expect that everyone in the developing world wants to run their own business.  Running your own business is risky, difficult, and takes a lot of training and understanding that most of us in the more developed countries do not have.  But, I do think that the innovative entrepreneurs are those people that will turn out to be the next Eli Whitney (inventor of the cotton gin), which can find innovative and creative solutions to the problems unique to the developing world.  This type of innovation will increase learning worldwide, and help to create the professional class that Amsdem talks about.

There are many issues to unpack here.  I will be continuing to discuss and explore these issues in other courses including microfinance and my business classes, as well as in the halls of Fletcher. I would love to have your comments and thoughts.

No Comments »

As I am new to this blog, I’ll first introduce myself.  I’m a second-year Fletcher student, focusing on technology and development.  My interests include monitoring and evaluation, mobile banking, and new forms of social media, so my posts will likely be related to those subjects.  I’ll start with a few reflections on my summer internship at Twaweza, an organization based in Dar es Salaam, Tanzania.

It has been very hard to explain to people the idea behind the organization I am worked for this summer, in and out of the development field. At this point, it is not even really an organization, but an initiative of Hivos, a large Dutch NGO, which is known for funding innovative and long-term projects. This is the description of Twaweza, published recently in a Hivos newsletter:

Twaweza Lets Africans Decide For Themselves

A ten-year initiative that will give people in Tanzania, Kenya and Uganda the means to improve their own quality of life. On all possible fronts, the way they want to. That is Twaweza.

The project was set up this year in collaboration with Hivos by the Tanzanian Rakesh Rajani, who worked in the field of development aid for many years. It is innovative that – except for broad contours – the actual plans of the project will be completely determined by the East African citizens…one such broad contour is that the project aims to increase access to information, for example, by broadening what is offered in the way of local media and improving their quality.

The truth is no one knows exactly how Twaweza will look in the next few years. But that is the idea: to be flexible and able to adapt to the needs of the community, rather than implement top-down projects, as happens so often in development aid. While it is not an advocacy organization in and of itself, it is hoped that through Twaweza, people will gain access to more information which will allow them to advocate for themselves. For example, one of the first projects Twaweza is funding will map water points throughout Tanzania, and use trained community members who will send text messages to a central database if their water point is not working. This will provide information on access to clean water for use by the media or citizens lobbying for the government to improve service delivery. FYI, in 2005, a survey by Afrobarometer showed that over half of Tanzanians had gone without clean water “several times,” “many times,” or “always” over the past year.

I decided to go to Fletcher to explore alternatives to traditional development aid. Since the Fletcher degree is both interdisplinary and flexible, I designed my study around this central question: how we can make aid more effective? If we are going to use tax-payer money, or even voluntary donations, how can we make sure that programs are actually helping people? Money will always come with political baggage – for example, no one should be surprised that most US aid dollars are funneled to Afghanistan and Iraq – but there is no reason why it can’t still be effective. Working at Twaweza provided the opportunity to explore one alternative model to development. Most of my other coursework, and the mobile banking conference that I worked on with fellow blogger Matthew Herbert, is closer to another popular alternative, using the private sector to tackle social problems. I do believe that the private sector is vital, and the public-private partnerships do often work better than development aid, but one can’t forget that the private sector can’t solve everything.  I look forward to continuing my relationship with Twaweza and seeing how their experimental approach works in practice over the next ten years.

No Comments »

The bankruptcy of Lehman Brothers and the financial havoc it unleashed misled many into believing that the era of big business has come to an end. The crisis set a record surpassed only by that of the Great Depression in terms of total business failures. In terms of “big” business failures however, the crisis ushered five of the eight biggest bankruptcy filings in U.S. history. Despite all this, a ballooning big bank industry—a product of government bailouts and large-scale consolidations—is paving the way for big business to become a whole lot bigger.

Today, J.P. Morgan Chase, Bank of America, and Wells Fargo hold a third of total bank deposits in the country. Together with Citigroup, they issue half of all mortgages and two thirds of all credit cards. On the other hand, over one hundred small and regional banks failed since 2007—over 80 in 2009 alone. Analysts expect close to a thousand to fail in the next few years (an eighth of the U.S. small banking sector), costing the FDIC close to $100 billion through 2013. Naturally, big banks get even bigger by picking up valuable small and regional bank assets at fire sale pennies on the dollar discounts.

There is a similar development in the general economy. Small businesses have been the most affected by liquidity shortages and shrinking consumer demand during the financial crisis. This is partly because of their limited access to credit and government bailouts. Recent surveys indicate that over 45% of the 27 million small businesses in the U.S. are currently not profitable.

The trend in the banking industry in the aftermath of the crisis (bigger and fewer banks) does not lend itself to the full recovery of the small business sector. Empirical research shows that banking industry consolidation negatively affects the supply of small business credit since larger banks are predisposed to invest significantly lower amounts of their assets in small business loans. In short, the overall economy following the financial crisis will not only be characterized by fewer and bigger banks, but also by fewer and bigger businesses.

This must not be a cause for concern however. In fact, this change might be exactly what is needed in the face of expanding markets, global interdependence, and energy and environmental challenges. Big businesses have more resources and better financing options, and therefore can carry out larger scale projects and ventures. They can also afford risky investments that are needed for groundbreaking technologies or penetrating unstable, but highly rewarding, markets. Last but not least, big businesses are indispensable for the growth of international trade and capital flows because of their ability to reach out to global partners and to operate and manage commercial and financial interests abroad.

These are just a few reasons why the swelling of big business at the expense of small business is one of the few silver linings in the current crisis. This development is an example of the self-correcting vigor of capitalism, constantly eliminating the inefficient and creating new sources of growth and opportunity. To borrow the words of Joseph Schumpeter, “this process of Creative Destruction is the essential fact about capitalism.”

3 Comments »