Lessons from Microfinance for the Sharing Economy

Microfinance is the provision of financial products and services to economically active poor people who, for a variety of cultural, social, gender-related, and other reasons, are excluded from the mainstream financial sector, especially in the developing world. The microfinance sector has grown significantly over the past few decades and, in 2006, Muhammad Yunus, considered by many to be the father of modern microfinance, was awarded the Nobel Peace Prize for his pioneering work in fostering access to finance as a path toward more peaceful relations.

At first glance, it may seem that microfinance and the sharing economy have little in common. Microfinance focuses on poor people in the developing world. Women represent the vast majority of microfinance clients, and many loans are for working capital assets such as livestock and small shop supplies. Ironically, many microfinance beneficiaries share out of necessity – as they have done for generations – though they wouldn’t necessarily think of building a business around it.

However, this first impression is incomplete. Further investigation reveals a multitude of similarities and – perhaps most importantly – key lessons that the sharing economy and collaborative consumption could learn from microfinance:

· Empowerment: At their core, both microfinance and collaborative consumption enable and promote empowerment of individuals. Responsible access to finance unleashes a positive chain of ripple effects: livelihood, income generation, and a brighter economic future for clients, their families, and communities.

Collaborative consumption achieves similar ends. As Rachel Botsman says, “…my core driver is how empowers people. It empowers people to tap into skills and talent that they have but haven’t found opportunities to make money from before. It empowers people to be in control of their jobs and their lives. It empowers people to make new kinds of connections that are often quite tricky to make.” Technology has democratized, economized, and facilitated the ways in which ever-increasing numbers of people can transact with one another and create new value.

· Trust, Reputation, & Social Collateral: Microfinance and sharing-based businesses depend on these essential characteristics for their very survival, in addition to their popularity. No rational person would make an uncollateralized loan to a poor person she doesn’t trust. In microfinance, your reputation substitutes for credit history (because the latter doesn’t exist). The group lending model of microfinance, in which each member of a group is responsible for ensuring that all members repay their loans, is premised on social collateral: You’re banking on an individual’s trustworthiness within society, rather than her material assets, as the best indicator of whether she can and will repay a loan. As a result, social standing among peers – especially within tight-knit communities – is built over time and reigns supreme.

Similarly, in the sharing economy this kind of social fabric and “trust barometer” can be created thanks to new technologies. Engaging in collaborative consumption – and getting used to it – lowers the trust barrier over time. Botsman summarizes it well: “The first few interactions people go through typically involve quite a few exchanges. Once they figure out that most people are trustworthy and that the idea works, the amount of trust features they use for future interactions declines.”

Sharing Economy Law: Outdated Rules Create Opportunity

Last month, a group of lawyers, entrepreneurs, business owners, ecovillage leaders, and community facilitators gathered in Portland, Oregon, for a two-day seminar on Legal Tools for the Sharing Economy. The course was taught by Janelle Orsi, co-founder of the Sustainable Economies Law Center (SELC) and author of the recently-published book Practicing Law in the Sharing Economy.

The course provided an expertly guided journey through what is, by all accounts, nascent territory. Legal, regulatory, and policy issues are central to the success and scale of Sharing Economy models. They exist at local, state, national, and even international levels. The list of applicable rules is long: transactional and business law; housing, land use, and zoning; labor and employment; intellectual property; corporate governance; non-profit law; and regulations relating to commerce, production, and fundraising… just to name a few.

However, many current laws and regulations affecting sharing-based businesses were drafted in and for an era of industrial production and mass consumption. Today, they are outdated and inappropriate. Thoughtful attention needs to be paid to revising – and, where necessary, overhauling – those rules that prevent the Sharing Economy from reaching its full potential, while maintaining basic protections of individuals and society at large. ThePolicy Agenda for a Sharing Economy recently published by SPUR offers a useful starting point for such efforts. The course took some of these issues even further.

Who Needs Laws, Anyway?

Fundamentally, the principal purpose behind many laws is good, such as rules designed to protect workers and consumers. But, when you apply them to many Sharing Economy transactions, they simply break down. Let’s take a look at a couple of examples.

At a hyper-local level, imagine you would like to host an event at which everyone brings a dish to share, pays $5, and swaps clothes. For most of us, this seems like a normal social gathering that has little to do with business. However, from a strictly legal perspective, a host of issues are raised:

• Does the food constitute a donation? A gift? Is it swapped? Bartered? Sampled? Sold?
• Does the $5 entrance fee constitute income? Does this answer change if you’ve invited five people versus 500 people?
• Do health and safety regulations apply if you’re serving people food in an (arguably) commercial setting?

These questions may seem bizarre, especially for non-lawyers, but in today’s world, there is a minefield of legal issues that arise from even a basic transaction. For example, donations and gifts are deemed non-taxable income, while barter exchange is taxable. Indeed, even if no cash is involved in a barter exchange, the IRS wants its share – in money – of the ‘value’ of such transaction. (Yes, this presents a conundrum not only for people who barter, but for policy makers themselves.)

At a macro level, various car-sharing services are bumping into very real challenges because the laws and policies governing transport were drafted during a time when the American dream was to own one (or often, more like three) cars and public transport was often an inferior second choice. Janelle’s earlier Shareable post on car sharing and parking sharing places this topic in context.

The key legal issues for shared transport today revolve around insurance, licensing, and zoning:

• Insurance: How can car-sharing companies obtain group insurance at economical rates, when most insurers are not equipped to develop such policies? How should these companies address insurers’ concerns about trust, risk, and safety head-on?
• Licensing: How can ride-sharing companies avoid onerous licensing requirements – such as those for taxi and limo drivers – for individuals using the service while still ensuring policy makers – whose top priority is to protect customers and promote safety – that drivers are safe, reliable, and trustworthy?
• Taxation: At what point does a casual car sharer become a business? Is there a difference, from a tax perspective, between car sharing to save money versus to earn money? (IRS answer: Sometimes.)
• Zoning: To promote resource-efficient, livable cities, what is the appropriate zoning for car-sharing spaces? Parking spaces? Should shared transport options be given preferential tax treatment or placement and, if so, how should these benefits be quantified and adjusted over time?

One can also imagine “next generation” policy opportunities related to transport and urban infrastructure. For example, what about creating a process for developing intersections into shareable community spaces (as Portland already does)? That not only calms traffic flow, but it also benefits – and beautifies – the surrounding area in invaluable ways.

So, What To Do? The (Legal) Path Forward

The course covered myriad legal issues ranging from taxation of cooperatives to the new Crowdfunding Act in the United States, community currencies (275 local currencies launched in Spain last year alone), and corporate governance for co-housing communities. Despite the diversity of topics, a few common themes evolved which provide robust guidance for any type of sharing-based enterprise – small or large, for-profit or non-profit, local or international – to best navigate today’s policy space. These themes also help identify recommendations for policy makers who wish to proactively manage risk and promote the Sharing Economy:

1. Truly share. One of the easiest ways to avoid legal hassles is to genuinely embody the spirit of sharing. For example, if you establish a truly cooperative governance structure, you have eliminated – or at least mitigated – many of the risks often associated with collective ownership. Further, the more truly cooperative you are in the workplace, the less likely you are to have employment-related problems. (See Upstream 21for further inspiration.)
2. Get out of the gray, if you can. If your activities fall within a legal gray area, do what you can to make them “less gray” and less burdensome. For example, if you make small-batch food for sale in your home kitchen, see if you can negotiate shared use of a commercial kitchen space instead. Or if you’re in licensing no-man’s land, make sure that your self-regulation is at least as rigorous as what the licensing authority would require (aside from obtaining the license, of course).
3. Agree. Develop contracts to further manage your risks. Legal agreements are an important way to spell out expectations and memorialize commitments. They also help to clarify who assumes certain liabilities and risks, and how disagreements are to be handled. Treat these agreements like an insurance policy – if all goes well, you won’t need them and, if it doesn’t, you’ll be prepared. In addition, you’ll be treating your colleagues, partners, and fellow sharers with the professional respect they deserve.
4. Exempt. Prior to drafting new laws (which can be an extremely long process), policy makers should look at opportunities to create exemptions or carve-outs from current laws that fit with Sharing Economy enterprises. They could consider temporary exemptions on a pilot basis to determine whether it is appropriate to extend the exemption permanently and/or what other mitigating measures might be taken.
5. Revise and redraft. The most salient – and, arguably, the most challenging – step is to redraft and update current laws and regulations for the Sharing Economy. This also includes drafting new legislation for the first time, which should be done on a sector-by-sector basis and incorporating feedback from the community. Iceland crowdsourced its new constitution: legislators everywhere could use the insights from that experience to involve a broad set of stakeholders in the process. Doing so would also enable a better understanding of how collaborative consumption is being adopted and could create feedback loops among policy-makers, sharing-based enterprises, customers, and community residents.
6. Iterate. Even with revised laws and additional exemptions, the legal and policy issues for the Sharing Economy will be far from over. As sharing-based businesses grow, thrive, and occasionally fail, we will discover additional gaps in the rules and identify new ways to improve the current system. Especially early on, these laws should not be static and set in stone, for that would assume (at some risk) that legislators get it right the first time – and that the Sharing Economy itself is uniform. Much better would be to adopt a thoughtful process of iteration which ensures that laws are refined and that best practices evolve over time.

Today presents an unparalleled opportunity for current and aspiring lawyers, policy makers, and engaged citizens to help redefine the enabling environment for the Sharing Economy and, in the process, to help rewrite the cultural narrative about what “the good life” means. Cities are starting to take notice of such opportunities: in San Francisco, Board of Supervisors President David Chiu is “revolutionizing cities” and spearheading legislation designed to address the key pain points of shared accommodation. This is only the beginning.

*This post originally appeared in Shareable: http://www.shareable.net/blog/sharing-economy-law-outdated-rules-create-opportunity

My “Consumption” Conundrum

I have difficulty with the word “consume.”  It’s pretty simple, actually.

The primary dictionary definition of consume is “to do away with completely; to destroy” (as in consumed by fire) and “to spend wastefully; to squander or use up” (as in playing tennis consumed his time).

[Sidenote:  I realize that spending one’s time playing tennis is not necessarily wasteful, and I will happily squander my time in nature, however I would use a different verb for either activity regardless.]

I struggle with the term when its other definitions — such as “to eat or drink especially in great quantity” and “to utilize as a customer” — are mapped onto this traditional definition.  I’m reminded more of situations in which (as Jerry Michalski has said for many years) being a “consumer” is little more than a gullet with eyeballs and a wallet.  When I enjoy an ice cream cone or wear a new shirt, I am definitely more than that!

Jerry is actually the inspiration for many of these thoughts.  His video on “That Troubling Word, ‘Consumer‘” is one of my favorites.  He also knows a lot more about the topic than I do.  But still…

In my opinion, “consumption” leaves true meaning on the table.  It falls fall short of what it’s intended to convey, and it trivializes the human being who’s “consuming.”

This shortfall extends also to notions of “collaborative consumption.”  I am a huge advocate and evangelist of sharing-based business models and other “new economy” ventures that, broadly speaking, are termed to be part of the collaborative consumption movement. (More on my interest in the Share Economy in an earlier post.)  However, even if collaborative, it still feels vulgar to call it consumption.

My goal is this: to improve upon the word ‘consume’ in a way that can also improve collaborative consumption.  Similar to how the term ‘consumer’ today often has been replaced by customer, client or guest, can’t we develop a better overall lexicon for other parts of speech too?

I welcome all ideas and suggestions along these lines and would be delighted to lead a broader conversation on this topic.  Yet another form of Sharing…

Whittling and Weaving

Hiking in the Yosemite high sierra last month gave pause for thought, along with time to sync with the seasons, swim in waterfalls and watch friends construct simple-yet-incredible balancing rock sculptures.

We started talking about how to spend a summer afternoon in nature.  “Whittling” was immediately mentioned: whittling time, whittling wood (for a walking stick of course), whittling an idea, or even whittling one’s waistline.  It has a beautiful sound.  And it got me reflecting on favorite verbs — in English only, as a list of melodious Italian or Spanish words would go on forever.

Whittle and weave are two of my favorite, complementary verbs.  According to Merriam-Webster:

• Whittle means “to cut or shape something by or as if by paring it with a knife; to trim or pare down.”  It also can mean “to wear oneself or another out with fretting.” (I guess I don’t like the latter definition so much.)

I also found a fun saying: He who trims himself to suit everyone will soon whittle himself away.

• Weave means “to interlace especially to form a texture, fabric, or design; to produce by elaborately combining elements; to direct (as in the body) in a winding or zigzag course, especially to avoid obstacles.”

It comes from Latin for web, also related to networks, which makes perfect sense.  One can weave a story, fabric, weave through time, and weave a wonderful life rich with a network of community, experiences and friends.

Whittling is about honing in on what’s essential, meaningful and purposeful.  Weaving is about taking those essential parts and blending them together in a tapestry or mosaic or story or journey, such that the sum — and beauty — of the threads together is greater than their individual parts.

May each of us weave and whittle a better life each day!

Sharing and Traveling

2012: extraordinary so far.

Calendars are full, airplane mileage accounts are growing, and I see more beauty and amazing-ness around us every day.  I’m learning to redefine “balance” as more of a blend, rhythm and flow.  There always seems to be some kind of imbalance, but in the big-picture it equals out.

I’ve been spending the vast majority of my time doing two things so far this year: sharing and traveling.  A brief update on each:

Sharing:  I continue to do a deep dive into the “Sharing Economy” which refers to new sharing-based business models and companies that are redefining how goods and services are exchanged, valued and created.  These models facilitate a shift away from the traditional “one person, one unit, one purchase” consumer mindset and towards a world in which access to a product, service or asset is more important — and more useful — than ownership.  They’re fundamentally enabled by new technology platforms to transact and build trust among peer communities.

If you’ve heard of Collaborative Consumption or Mesh-based enterprise, we’re talking about very similar trends.  My two favorite books in this space are The Mesh by Lisa Gansky and What’s Mine Is Yours by Rachel Botsman.  I plan to start writing more about this too!

From my perspective there are three key levels of analysis (and benefits to be had in) a sharing-based world):

(1)    Economic: what does it cost to make a given per-person-per-unit purchase, versus a shared resource?  Answer: sharing costs less.

(2)    Environmental: what’s the environmental impact of a given per-person-per-unit purchase, versus something that’s purchased and shared?  Answer:  sharing results in lower environmental footprints. (Note: price of the item might go up, if it’s higher-quality and made to last; net-net this is more environmentally astute, and the lifetime price is reduced.)

(3)    Community:  possibly most important, what is the community that you’ve created by a sharing-based platform?  Answer:  sharing creates and nurtures deeper relationships. Compare and contrast individual-purchase “experiences” to those in a shared economy:  who do you come in contact with, and who do you care about as a result? In my experience, not much…

The sharing economy attracts me for more reasons than I can count, though the two (related) areas that interest me most are policy and business development.  I see many parallel themes with my work in microfinance, catalyzing cross-sector collaboration and building social capital — and a future world in which sharing is a dominant economic force.

So, you can expect many more posts focused on the sharing economy here.  I may have to rebrand the site from “Borrowing Great Ideas” “Sharing Great Ideas & More!”

Traveling:  As usual, I’ve also been traveling a lot.  A bit too much, actually, but thankfully things slow down the latter half of the year.  Here is a recap of places visited, favorite experiences and things learned so far this year:

• Ano Nuevo State Park: in January, watched the incredible nursing elephant seals along the Pacific Coast
• Cambodia:  spent most of February in this gem-of-a-country, assessing potential WaterCredit expansion opportunities. Fell in love with the capital Phnom Penh (think Saigon, only smaller and more relaxed), traveled a lot of the country by road, and did handstands at Angkor Wat.
  
• Atlanta:  I returned to Emory to give a keynote speech on Women, Water and Microfinance.  A nice article in the Emory Magazine came out shortly thereafter.
• Harvard Kennedy School:  in March and early April, I returned to Cambridge for a 2-week YGL course on Global Leadership and Public Policy.  Hands-down this was the best professional experience of the year; I am still implementing the benefits.
• Mexico and Bolivia:  the latter half of April, I headed first to the World Economic Forum / YGL annual summit.  In a word: amazing.  From there to Bolivia for more WaterCredit due diligence.  Returned home happy, having recouped some of my Spanish, and starting to get a little tired.
• Jerry’s Retreat: Jerry hosted his 16th Retreat for 4 days near Tomales Bay, Point Reyes. As usual, a wonderful gathering with “good people, good ideas and good intent.”
• Seattle and Colorado:  the day after the Retreat ended, I headed to the YGL Seattle Summit hosted by the Gates Foundation (Bill and Melinda themselves!).  Learned about the future of development, Microsoft’s home of the future, and sustainability at Starbucks.  From there hopped over to Colorado to run the Bolder Boulder 10K race (per tradition) with my nieces.
• Austria:  in June, I attended a 4-day workshop in the Austrian Alps, hosted by the Austrian government and business leaders.  Titled Create32, and the questions we tackled focused on what business and innovation in Austria (and beyond) would look like 20 years from now in 2032.  Fantastic experience!
• Indonesia:  also in June and early July, I headed to Indonesia with colleagues from Water.org for the last (for now!) reconnaissance trip focused on WaterCredit expansion.  It was a(nother) great trip; Indonesia is changing so quickly, and I barely recognized Jakarta from several years ago.

Interspersed within all that was also a delightful visit to San Francisco by my “Italian sister,” a family wedding in the Utah mountains, and a quick trip back to Colorado where Indonesian jetlag hit in full force.  Okay, now I am really tired…

Happily, I’m grounded for a month-plus as I get a new passport.  This gives plenty of time to water my local roots — best of all — and take some fun domestic trips: camping at Yosemite, Cape Cod and New York City coming up in the near future.  Later this year, I’ll complete my circuit of visiting all 50 U.S. states when I finally make it to number 50: Hawai’i.

Eager to share more soon…