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How Frugal Innovation Can Kickstart Global Economy

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In late 2015 a Cambridge-based nonprofit released the Raspberry Pi Zero, a tiny £4 computer that was a whole £26 cheaper than the original 2012 model. The Zero is not only remarkable for its own sake – a computer so cheap it comes free with a £5.99 magazine – it is also symptomatic of a larger “frugal innovation” revolution that is taking the world by storm.

With the global economy struggling, this is the kind of innovation that could kickstart it in 2016. Empowered by cheap computers such as the Raspberry Pi and other ubiquitous tools such as smartphones, cloud computing, 3D printers, crowdfunding, and social media, small teams with limited resources are now able to innovate in ways that only large companies and governments could in the past. This frugal innovation – the ability to create faster, better and cheaper solutions using minimal resources – is poised to drive global growth in 2016 and beyond.

More than four billion people around the world, most of them in developing countries, live outside the formal economy and face significant unmet needs when it come to health, education, energy, food, and financial services. For years this large population was either the target of aid or was left to the mercy of governments.

More recently, large firms and smaller social enterprises have begun to see these four billion as an enormous opportunity to be reached through market-based solutions. These solutions must, however, be frugal – highly affordable and flexible in nature. They typically include previously excluded groups both as consumers and producers. Bringing the next four billion into the formal economy through frugal innovation has already begun to unleash growth and create unprecedented wealth in Asia, Africa and Latin America. But there’s much, much more to come.

Good news

Take the case of telecommunications. Over the last decade or so, highly affordable handsets and cheap calling rates have made mobile phones as commonplace as toothbrushes. In addition to bringing massive productivity gains to farmers and small businesses – not to mention creating new sources of employment – mobile phones also enable companies to roll out financial, healthcare and educational services affordably and at scale.

Take the case of Safaricom, Vodafone’s subsidiary in Kenya. In 2007 the company introduced M-Pesa, a service that enables anyone with a basic, SMS-enabled mobile phone to send and receive money that can be cashed in a corner shop acting as an M-Pesa agent.

This person-to-person transfer of small amounts of money between people who are often outside the banking system has increased financial inclusion in Kenya in a highly affordable and rapid way. So much so that more than 20m Kenyans now use M-Pesa and the volume of transactions on the system is more than US$25 billion, more than half the country’s GDP. M-Pesa (and services like it) have now spread to several other emerging markets in Africa and Asia.

Similar frugal innovations in medical devices, transport, solar lighting and heating, clean cookstoves, cheap pharmaceuticals, sanitation, consumer electronics and so on, have driven growth in Asia and Africa over the past decade and will continue to do so in the decades to come.

Catching on

Meanwhile the developed world is catching up. Declining real incomes and government spending, accompanied by greater concern for the environment, are making Western consumers both value and values conscious.

The rise of two massive movements in recent years, the sharing economy and the maker movement, shows the potential of frugal innovation in the West. The sharing economy, exemplified by Airbnb, BlaBlaCar and Kickstarter, has empowered consumers to trade spare assets with each other and thus generate new sources of income. The maker movement, meanwhile, features proactive consumers who tinker in spaces such as FabLabs, TechShops and MakeSpaces, designing solutions to problems they encounter.

Square, a small white, square device that fits into the audio jack of a smartphone, using its computing power and connectivity to make credit card payments, is an example of a product that was developed in a TechShop. Launched in 2010, the Square is on track to make US$1 billion in revenue in 2015.

Frugal innovation not only has the power to drive more inclusive growth by tackling poverty and inequality around the world, it is also increasingly the key to growth that will not simultaneously wreck the planet. The big issue at the Paris climate summit was the increasing wedge between the developed and the developing world. On the one hand, the rich countries cannot stop the poor ones from attempting to achieve the West’s levels of prosperity. On the other, however, poor countries cannot grow in the way the West did without wrecking the planet.

The only way to square this circle is to ensure that the growth is sustainable. The need for frugal innovation is therefore all the more vital in areas such as energy generation and use, manufacturing systems that are more local, and a move to a circular economy where companies (and consumers) reduce, reuse and recycle materials in a potentially endless loop.

Never before have so many been able to do so much for so little. Aiding and stimulating this frugal innovation revolution holds the key to driving global growth by employing more people to solve some of the big problems of poverty, inequality and climate change that stalk the planet.

This article was written by Jaideep Prabhu, Director of Centre for India & Global Business at Judge Business School, University of Cambridge. see more.

Entrepreneurship

Will Financial Liberalisation Trigger a Crisis in China?

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The People’s Republic of China (PRC) has been liberalizing its financial system for nearly 4 decades. While it now has a comprehensive financial system with a large number of financial institutions and large financial assets, its financial policies are still highly repressive. These repressive financial policies are now a major hindrance to the PRC’s economic growth.

The PRC is at the beginning of a new wave of financial liberalization that is necessary for supporting the country’s strong economic growth. The country’s leaders have already unveiled a comprehensive program of financial reform, which includes 11 specific reform measures in three broad areas: creating a level-playing field (such as allowing private banks and developing inclusive finance), freeing the market mechanism (such as reforming interest rate and exchange rate regimes and achieving capital account convertibility), and improving regulation.

But could financial liberalization lead to a major financial crisis in the PRC? What would be the consequences for financial stability as the PRC moves to further liberalize its financial system? If the PRC repeats the painful experiences of Mexico, Indonesia, and Thailand, then it might not be able to achieve its original goal of overcoming the middle-income trap.

International experiences of financial liberalization, especially those of middle-income economies, should offer important lessons for the PRC. In our new research, based on cross-country data analysis, we find that financial liberalization, in general, reduces, not increases, financial instability. This powerful conclusion is valid whether financial instability is measured by crisis occurrence or by fragility indicators, such as impaired loans and net charge-offs. The only exception is that financial liberalization does not appear to significantly lower the probability of systemic banking crises, although it does lower the risk indicators for banks. These results have higher statistical significance and are greater in magnitude for the middle-income group than for the entire sample.

The insignificant impact on banking crises, however, should be interpreted with caution. One of the possible explanations is that under the repressed financial regime, the government supports banks with an implicit or explicit blanket guarantee. This reduces the probability of an explicit banking crisis, although the banking risks may be even greater because of the moral hazard problem. In fact, government protection of banks could also increase the probability of a sovereign debt crisis or even a currency crisis before financial liberalization.

If financial liberalization significantly reduces the likelihood of financial crises, especially in middle-income economies, then why did some middle-income economies experience financial crises following liberalization? We further investigate whether the pace of liberalization, the supervisory structure, and the institutional environment matter for outcomes of financial liberalization.

We obtain three main findings. First, an excessively rapid pace of financial liberalization may increase financial risks. The net impact on financial instability depends on the relative importance of the “liberalization effect” and the “pace effect.” In essence, what the “pace effect” captures could simply be the prerequisite conditions and reform sequencing that are well discussed in the literature. Second, the quality of institutions, such as investor protection and law and order, also matter. International experiences indicate that investor protection can significantly reduce the probability of financial crises. Third, the central bank’s participation in financial regulation is helpful for reducing financial risks during financial liberalization. This is probably because central banks always play central roles in financial liberalization, especially in the liberalization of interest rates, exchange rates, and the capital account. If a central bank is responsible for financial regulation, its liberalization policies might be more cautious and prudent.

Our research findings offer important policy implications for the PRC. (1) Further financial liberalization is necessary not only for sustaining strong economic growth but also for containing or reducing financial risks. (2) Gradual reform may still work better than the “big bang” approach, and sequencing is very important for avoiding the painful financial volatilities that many other middle-income countries have seen. (3) The government should also focus more on improving the quality of other institutions, especially market discipline, to contain financial risks. (4) It is better for the central bank to participate in financial regulation. The new regulatory system should focus exclusively on financial stability and shift from regulating institutions toward regulating functions. It should also become relatively independent to increase accountability.

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About the Author 

This submitted article was written by  and  of Asia Pathways, the blog of The Asian Development Bank Institute was established in 1997 in Tokyo, Japan, to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in the Asia-Pacific region.

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Entrepreneurship

Women on Top in Tech – Chrissa McFarlane, Founder and CEO of Patientory

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(Women on Top in Tech is a series about Women Founders, CEOs, and Leaders in technology. It aims to amplify and bring to the fore diversity in leadership in technology.)

Chrissa McFarlane is the Founder and CEO of Patientory, a patient-centered enterprise solution on the blockchain to store, secure and access healthcare information in real-time. She is a leader and an entrepreneur with a passion for creating cutting-edge healthcare products that transform the face of healthcare delivery in the United States of America and abroad.

What makes you do what you do?
I am passionate about helping people, especially when it comes to their healthcare. This is my daily motivation for pushing forward in one of the most challenging industries to innovate.

How did you rise in the industry you are in?
Through my networks and maintaining a strong advisory board, I am able to make an impact.

Why did you take on this role/start this startup especially since this is perhaps a stretch or challenge for you (or viewed as one since you are not the usual leadership demographics)?
I took on the role and decided to start this startup primary to follow my passion and be an inspiration for other women who are seeking to start their own business.

Do you have a mentor that you look up to in your industries or did you look for one or how did that work?
I have multiple mentors. I met them through my networks.

How did you make a match if you did, and how did you end up being mentored by him/her?
Through introductions and after speaking with them I saw a character alignment that prompted me to ask them to by my mentor.

Now as a leader how do you spot, develop, keep, grow and support your talent?
Through one on one meetings, and team building.

Do you consciously or unconsciously support diversity and why?
I consciously support diversity because a diversity of thought breeds success in the workplace. It is important to have different lenses of thought to be represented. Our company is a representation of the people we serve.

What is your take on what it takes to be a great leader in your industry and as a general rule of thumb?
A great leader in healthcare is equipped to serve the people. Unlike many other industries, healthcare is centered around sustaining the health of the human being. You certainly need to encompass a passion for seeing individuals live and lead healthy lifestyles.

Advice for others?
In building emerging technology, education is always key to success.

Our first Inaugural Blockchain Healthcare Summit will take place on May 31st in Atlanta, GA where we will discuss the current state of blockchain projects and opportunities for the future.


If you’d like to get in touch with Chrissa McFarlane, please feel free to reach out to her on LinkedIn: https://www.linkedin.com/in/chrissamcfarlane/

To learn more about Patientory, please click here.

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