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By the Bocconi East Timor Project Group
Of the many countries and cities of the world that MBA candidates turn their gaze to as the recruiting season moves into full swing, East Timor ranks pretty low on the horizon. Not for a team of MBA students from Bocconi University in Milan, however, who eschewed potentially lucrative internships with investment banks and consultancy firms to spend their summer working in a country that ranks 158 out of 177 in the UN Human Development Index (2004) as the poorest country in Asia.
With GDP per capita estimated at US$434 in 2004, and some 40% of the population living on less than US$2 a day, East Timor is far from Via Monte Napoleon, the premier fashion thoroughfare in well healed-Milan. "We knew we wanted to do something different and had encouraged the University's involvement in the UN International Year of Microcredit. It was logical to follow on from this with a project related to microcredit, and East Timor is a country that we knew would welcome constructive assistance", says Ross Ferguson, Project Leader. Bocconi University agreed, and with the business school, offered to support a project if one could be found.
"We developed contacts with a number of stakeholders in East Timor over the course of the summer", explains Ferguson. "We knew that for the project to be credible, we had to find a strategic partner - one who had a real need and could use the skills we had learned at business school". That strategic partner came in the form of the US Agency for International Development (USAID), the principle bilateral institution operating in East Timor.
With an extensive history of recognizing educational institutions as valued partners in international development, USAID has long been active in East Timor and since 2000, has supported the growing microfinance industry through its Small Grants Programme. USAID's goal in supporting microfinance activities in East Timor, to increase economic opportunities for the poor, especially women, as well as building a financial foundation for entrepreneurship, was quickly recognised as consistent with the project's goals and the wider objectives of Bocconi.
The project team was tasked with supporting the Country Strategy goals of USAID in East Timor, and to produce an appraisal of demand-side factors and barriers for second tier credit, specifically small business loans of between US$1,000 and US$10,000. The team knew that the donor agencies were short of hard data to back a belief that there was a demand for small business loans. USAID offered support while the project team stayed in East Timor, but otherwise the team was responsible for devising a methodology and testing it to see what different perspectives they could come up with. Before beginning and completing the ascribed fieldwork, the project team met with staff of USAID in East Timor, to review progress and agree on next steps. The project tried to be self-sufficient but utilised a wide circle of contacts and a reservoir of goodwill from local actors on the ground.
The study complemented and built upon existing work on the financial sector In East Timor, but these studies largely focused on supply-side analysis of financial services and products. Across the developing world, demand-side analysis for credit that would typically be targeted at small businesses is scarce, in large part because financial service providers often neglect this market segment. 'Demand' is also notoriously difficult to quantify in developing countries, because the purpose and time period for which small businesses or households demand services is diverse and complex, with demand for different services varying with price and over time.
Professor Brusati of the Bocconi University School of Management joined the team to provide advisory support, and three team members made the long journey to East Timor. Over the course of the next three weeks, the team conducted a survey of business activity in six regional towns, and used a structured questionnaire to identify small business attitudes and capacity to absorb second tier credit. Together with secondary data collected during the visit, the team put together an analysis of the service and industrial sectors in the six towns. Using a formula that focused on total capital employed, the team came up with numbers indicating that there was a small but important demand for small business loans, currently unmet. The team offered conclusions, suggesting ways to turn that potential demand into effective demand, and also presented qualitative data concerning basic constraints faced by business owners in trying to grow their enterprises.
"Our analysis only captures a narrow section of the potential market. Whilst presenting an indication of the portfolio size and number of potential clients, we stressed that the figures were secondary to the methodology we had developed. It will take a better-resourced and more comprehensive study for people to be more sure of the numbers. We simply provided a map", explains Ferguson, adding, "key to our work has been building trust with our partners and particularly the small business owners whose welfare was the real focus of our Project".
A formal presentation was made at the end of the visit at the Timor Institute of Development Studies, attended by interested stakeholders, including members of the East Timor Government, the World Bank, the International Labour Organisation, the Asian Development Bank, the United Nations Development Programme, as well as the leading microfinance institutions and strategic partners, USAID and Development Alternatives Inc.
Now back in Italy, the team is still thinking about East Timor: a presentation has been made within Bocconi University, to an audience including MBA students and staff of the University. The students are currently drawing up a draft report to be ready in October.
So was the project a success? The team believes that it made a valuable contribution to understanding the demand for credit in East Timor. Importantly, its analytical work may result in strategic recommendations that stakeholders will consider in building a platform for future donor funding in the development of small businesses in the country. As a measure of that success, it is possible that there will be a second visit to East Timor later in the year to present the final report to USAID as well as a new audience.
The Dean of Bocconi, Prof. Maurizio Dallocchio is a firm supporter of the initiative; he says, "With each new generation of students, the ideals of corporate social responsibility need to be renewed, and we saw this project as a wonderful opportunity to renew these ideals. Helping to assist one of the poorest countries in the world, in cooperation with one of the world's leading aid agencies, presents the Business School and the wider University with another opportunity to engage with the problems of the world".
The team is keen that future MBA students continue to build on the relationships that were created in East Timor, and hope that a new project team can be formed next year to carry on the good work. Reflecting on the project, Ferguson adds, "The numbers we provided were important, but it is vital that the business and non-profit world continue to engage the reservoir of goodwill and all the resources available. This way, we can facilitate the transfer of skills, not just financial resources. In return, we gained an enormous amount from our contact with wonderfully resilient people".
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