Leveraging Microfinance
A Tool to Aid Ground
Commanders in Distributing Funds
Micro grant application process in Baghdad, Iraq (2009)
Contact Information:
Email – [email protected]
MAJ David Beskow
MAJ Isaac Faber
CDT Colin Fisk
CDT Nicholas George
CDT Max Gordon
CDT Lance Parker
CDT Braden Schoenlein
What do these people
have in common?
To create
as much
money as
possible
by the time
they leave
2
Problem Statement
How much should we bet here?
The project’s objective is to determine how a ground
commander can best allocate available funds in order
to raise a community’s economic output within a
current Area of Operation.
System’s View
Current military
strategy often fails
to consider the
importance of
economics… or
worse uses it as a
weapon
Q: How can we encourage
stability through growth in local
economies?
A: Invest in the right businesses.
4
*http://www.systemdynamics.org/conferences/2009/proceed/papers/P1010.pdf
Data
• This project leverages microfinance
data to develop ‘investment’ portfolio
recommendations
• The primary data set used is a record
of Kiva microloans; gathered from
their API
– This data set contains geographic,
demographic and financial loan
data points
– Over 1 million loans are available
• The comparison data set used is from
the world bank
– This data set contains country
level metrics of interest
5
Dataset Integration
•
Consolidated Kiva data to match
sectors found in World Bank
Kiva looks at individual loans
World Bank looks at overall economic
performance of the country
•
•
Economic Sector
Description
Agriculture
-includes forestry, hunting, fishing,
cultivation of crops, and livestock
production
Industry
-comprises of mining,
manufacturing, construction,
electricity, water and gas
Education
-total public expenditure on
education
Health
-sum of public and private health
expenditure
-includes family planning activities,
nutrition activities, and emergency
aid
Services
-includes wholesale and retail trade,
transport, and government,
financial, professional, and personal
services (ex. real estate services)
6
Methodology
Approach
•To conduct portfolio analysis, a
country’s economic sectors are
viewed as individual stocks.
•The bet size will be based on a
ground commanders CERP funds
Portfolio Optimization
•Diversifying assets helps to
minimize risk while maximizing
growth
•Balances risk and return in order
to achieve optimal growth
n
Maximize
1 n
wi  i   wi ij w j

2 i , j 5
i 5
n
Subject to
7
w
i 5
i
1
wi  0
*“Investment Science.” David G. Luenberger
Assumptions
•Information from various
datasets is relatable
•The project will be utilized at an
operational level
•Data on micro-grants will
perform similarly to microcredit
loans
Optimal Growth
•Wealth (GDP) is represented
through the rate of economic
growth
•Considers long term growth
through taking on possible short
term risk in assets
-Guides commander on how to
achieve optimal growth over
time
Benefits
• Potential Project Outcomes:
– Stimulate new means of measuring the
effectiveness of loans in the MF community.
– Improve civil-military relations by achieving
optimal economic output within a region through
the use of CERP funds.
– Boosts creation of new businesses as well as
assets for existing businesses
Kenya As a Case
• Lots of diverse information available
• Considered a leader in microfinance and
microcredit
9
Results: Kenya
World Bank
Kiva
The charts represent the balancing of risk and return of the economic sectors.
The placement of each sector along or below the Efficient Frontier is dependent on
the value that sector can provide to the portfolio.
10
Optimal Growth: Kenya
Only Invest in
Agriculture
Invest in
Education,
Health and
Services
The differing results from the two sources of information illustrate the
difference in total economic output and that of the lowest earners. The Kiva
data offers guidance on how to invest to improve from the bottom up where
11
the world bank data shows country wide suggestions.
Example: Kenya
•
•
•
•
12
Consider a ground commander with a mission in Kenya. She is given an annual
budget of $250,000 to develop the local economy.
According to our analysis she should strive for the following allocation:
Sector
Allocation
Education
$25,000
Health
$180,000
Industry
$0
Services
$45,000
Agriculture
$0
While this portfolio may not be explicitly possible due to mission constraints it
gives an ideal or a starting point instead of having to rely on incomplete
information.
This information should be updated and if possible based on locally collected
financial data
A Tool For Commanders