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Subscribe to this list via RSS Blog posts tagged in Geopolitics

In recent years the possibilities of the Arctic have hit the news now and again. Mostly it goes unnoticed. For many people the Arctic is still just a big chunk of very cold, inaccessible and uninhabitable land. The Arctic region covers more than 30 million square kilometers or 18 million square miles. However, since 1979 the extent of Arctic sea ice has decreased rapidly and according to a UN climate report Arctic summer ice is set to be gone in less than 40 years, much faster than anticipated. While this present huge opportunities for developing the Arctic region, scientists also worry that the melting of the Arctic permafrost could be a “economic time bomb” as it releases unusually large amounts of methane (potent greenhouse gasses) that could potentially cause significant climate changes.

The Arctic actually isn’t just a piece of uninhabitable land. It is to home to about 4 million people from 40 ethnic groups and an economy of US$230 billion. While it is a region ripe with opportunities, it is also one of the last true wildernesses on earth and an extremely challenging environment. According to the United States Geological Survey about 13% of undiscovered oil and 30% of undiscovered gas reserves are in the Arctic. In a world facing rising oil prices, countries as well as international oil corporations have shown much interest in recovering these vast reserves. However, it is widely believed that the potential oil and gas fields are out at sea, far from land as well as infrastructure and in extreme climatic conditions, making production far too expensive. Exploring other and cheaper options such as shale gas in North America and conventional gas production in in the Middle East could be better and more viable options! The Arctic as the new energy source should not go completely unquestioned.

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It is a well-guarded compound with a high, whitewashed wall facing the street. Access is restricted to a solid, metal-framed sliding gate, and only a small peephole allows the guards a view of the entrance on University Avenue Road. Your occasional correspondent is standing outside Aung San Suu Kyi’s house on the shores of Inya lake in northern Rangoon, not really sure what to do there. There is nothing to see and the car is waiting for me on a narrow curb in the late afternoon rush hour traffic. I am thinking it’s probably time for dinner.

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Many thanks to former UN colleagues Todd Smith and Odkhoi Bold for your up-to-date perspectives from Mongolia! 

I will never forget what economist Jeffrey Sachs said in 2002 about Mongolia’s prospects for development: “Half of the people live in yurts. Their connectivity is low. They have no viable industry right now […]. The real economic answer for Mongolians is to leave. But that's not the answer for Mongolia” (my italics). Looking up my Mongolian friends on Facebook, most of them are still there, and one Canadian friend, Todd Smith, has even stayed on in Ulaan Baatar and started a family.

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We are delighted to welcome Judith Wedel as our occasional correspondent from Brussels. She is a sociologist and journalist and she will keep us updated on the latest trends from Belgium, the Netherlands and Germany. Her focus is on political developments with regards to business, social and environmental issues. In her first blog she shares her insights about how monitoring EU institutions has become a growth industry for Europe

After some years abroad we’re back to Brussels – the European melting pot. The unofficial European Capital doesn’t offer an easy welcome initially. The sky above the city seems to be stuck in shades of grey, public administration often appears somewhat Kafkaesque and signposting is not a Belgian strength. It takes a lot of patience, effort and tenacity to find your way around.  Skills you also need when working in the surroundings of the European Institutions.

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The Yale Center for the Study of Globalization through its YaleGlobal online service has just launched an ebook A World Connected: Globalization in the 21st Century which is well worth the read for anyone interested in how globalization has – and will in future – impact our world, lives and work.  It’s a seminal collection of essays collated from over ten years of work by scholars, practitioners, politicians, and experts in the study of globalization. 

One of its most compelling points is its broad scope, covering the complex array of ways in which globalization is changing our world – often discussions of globalization narrow in to areas of economics and trade, or to the global capital markets which have had such an impact in recent years, or to the geopolitics of a new world order. With the notions of interconnectedness and interdependence as its lenses, the book not only explores these topics, but also the many ways in which globalization touches all of our lives and interweaves communities, countries and continents – including how cultures and societies develop, how we seek security, how ideas moving around the world are impacting creativity, how rising inequalities are changing societies, how China’s rise is impacting the world, and how we as people interact around the world.

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The winds of reform are blowing in Asia at the moment. Or so it seems when one reads the headlines. Are the loosening of the authoritarian regime in Burma (sometimes called Myanmar) and the recent protests by Chinese journalists really manifestations of openness in these countries? 

To first check out the longer term trends, your occasional correspondent turned to the internationally recognized indices relevant for political governance. It turned out to be depressing reading. In terms of press freedom, both Burma and China score in the bottom five percent of the Reporters Without Borders’ Press Freedom Index over the past decade. The Freedom House Index, measuring political rights and civil liberties, shows similar results. In terms of corruption, represented by Transparency International’s corruption perception index, China’s result is near the middle among the world’s countries, whereas Burma is consistently cited as one of the three most corrupt countries in the index since 2004.

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Your occasional correspondent is tuktuking south on Chamkardoung boulevard on a steamy hot October day. Red dust and nauseating diesel fumes fill my lungs and eyes as we approach the infamous Khmer Rouge killing field outside Phnom Penh. The nausea is exacerbated by seeing the physical remnants and listening to vivid accounts of a horrendous time in Cambodia’s history in what is nowadays an open air museum.  Historical images of forced labor and starvation in the rice paddies, torture and execution in the killing fields fill my head. Later, returning northwards, zigzagging through the sprawling urban landscape, history fades and today’s reality grabs my attention and fills me with a glimmer of hope. The small independent businesses along the road are seemingly thriving: bakeries, furniture-, hardware- and appliance-stores, delivery companies, the larger beer breweries and garment industries. Only a few decades after Pol Pot and his regime were forced out of power in 1979, Phnom Penh has gone from ghost-town to this dynamic hustle and bustle. 

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Note to self: Stay here! Singapore is buzzing. There is no other way to describe the activity and creativity visible in every corner of this miniscule adopted home country of mine. And it is buzzing in a sort of planned and structured way that makes you feel as if everything is moving onwards and upwards. Therefore, the fact that Singapore scores among the top third in this year’s Global Innovation Index and at the top of the Global Innovation Policy Index comes as no surprise.

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In The Global Trends Report 2013, one accelerating challenge is the Fight for Control & Access to Resources.  As the world scrambles to deal with increasing natural resource scarcity and the explosion of digital resources, competition is increasing at both a corporate and national level to build the capabilities that will drive long-term success.  For some this means concentrating power over resources, for others it means new business models and approaches which allow greater control over resources at regional and community levels.  As control & access to resources becomes more distributed, one of the implications for organizations that we highlight in this year's report is the need to shift mindsets from control and ownership of resources to shaping the network that needs the resources.

Changes in resource availability and the competitive landscape mean not only that competition will come from new directions, but also that companies will require a mix of collaborative as well as competitive strategies and tactics to succeed in future. Traditional business patterns are being disrupted by the explosion of social media and other digital platforms, with organizations increasingly turning to open source and collaborative networks that allow them to find, create, and leverage resources and knowledge faster, more effectively and at lower cost than in old “closed loop” models controlled within a company. Firms are moving from being the central players in a physical value chain, to being nodes in open networks of value creation that span the physical and digital worlds. In this connected world, no single organization can ever hope to meet all of its customers’ needs alone. Partnerships will also be required to deliver on the increasing demands of customers for solutions and experiences as well as to deal with commoditization.

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We are delighted to welcome Malin Samuelsson as our occasional correspondent from Singapore, who will be sharing her insights about trends -- from political to economic and social -- impacting and being driven from Asia. Malin is a political scientist and linguist with deep experience in the region and has worked with the UNDP, NGOs and government agencies, from China to Mongolia, Sweden and Switzerland. In her first blog she explores the Chinese leadership transition from a Singaporean perspective.

As an old China hand returning to Asia a couple of months ago, I was looking forward to immersing myself in up-to-date and insightful accounts of the forthcoming transition of power to the fifth generation of post-revolutionary leadership in China. Clearly these imminent changes must be a topic of interest here in Singapore? The greatest changes in three decades are expected at the very top of the ruling Communist Party – 14 of the Politburo’s 24 members are expected to step down, along with seven of the nine members of its powerful Standing Committee. A huge change.

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The last two weeks have seen unprecedented social unrest around the world – the democratization of everything is spreading but frankly it’s not a pretty sight.  Just think back on the headlines:

  • China and Japan facing off over disputed ownership of islands in the East China Sea – with demonstrations and violence against Japanese businesses in China as nationalist sentiment rises, compounded by the anniversary of a politically sensitive incident.
  • Demonstrations, violence and deaths across the world from North Africa and the Middle East to Indonesia and Pakistan as Muslims protest over a cheap and nasty film ridiculing Islam, clearly produced by less than a handful of bigots to incite religious turmoil.
  • Ongoing strikes and renewed violence as South African miners demand higher wages and clash with security forces, even as some returned to work.
  • Massive demonstrations in Portugal and Spain against austerity measures as standards of living fall and unemployment soars – plus renewed demonstrations by Catalan separatists.
  • In India, tens of thousands protest against government plans to open the retail trade to foreign investors, as well as rising fuel prices.
  • Russia’s President Vladimir Putin, re-elected this year, targeted by up to 50,000 demonstrators in Moscow, calling for an end to his rule.
  • In Argentina, President Cristina Kirchner’s government facing the largest pot-banging protest ("cacerolazos") since taking office as people protested over corruption scandals, crime and management of the economy.
  • Occupy Wall Street protesters back to mark the anniversary of the movement, although with fewer feet on the street and continued tensions with police.
  • Continuing protests over natural resources in Peru, particularly directed at the mining sector, leaving one more person dead this week.
  • Ongoing protests over the July election of President-elect Enrique Peña Nieto in Mexico, amid accusations of vote-rigging and media collusion, including a cyber-attack this week on government, political and media websites.
  • The threat of renewed protests in the Chinese village of Wukan, as elections have not brought the desired changes in government control nor the return of land sold illegally.  

The list could go on – frustration and anger is boiling in societies around the world over: their own government’s management of economy and society; perceived threats to livelihoods; inequality; religious insults and intolerance; crime and corruption; and natural resource ownership.  It’s a potent cocktail of grievances. The cost to societies in terms of driving divisions and damaging livelihoods and economies is massive. What’s causing the unrest? And what can we do about it?

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In my last blog post, I talked about the phenomenal rise and opportunities in Vietnam, but there are also challenges ahead.  Some thoughts from discussions while there…

While the streets of Hanoi and Saigon (as locals still call Ho Chi Minh City) are vibrant, they also testify to the growing pains of this rapidly emerging nation, which only started international reintegration in 1986 after prolonged military engagement.  In 1975, when the country reunified under a communist government, it was isolated and devastated from military action. Even today, younger generations of Vietnamese entrepreneurs talk from personal experience about how they and their families suffered during this period and the disastrous post-war collectivization of farms and factories which led to massive inflation and economic collapse. The shift in leadership and policies in 1985 heralded a new start for the nation, with free market reforms – known as Đổi Mới (Renovation) – starting the transition from a planned economy towards a socialist-oriented market economy.  Private ownership, economic deregulation, foreign investment and newly resumed trade links with the world restarted the engine of growth.

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The headlines have been full of numbers recently, particularly as we have just passed a milestone where the 7 billionth person has now joined the world’s population (give or take a few million and a few months either way).  So let’s start there in terms of looking at some important numbers that will impact the world in the next decades.

1.  7 billion: The world’s (estimated) population at the end of 2011

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NASA reported today that the final voyage of Space Shuttle Endeavour, originally planned for Friday, would be delayed by several more days due to technical problems.  The Space Shuttle was originally to be retired in late 2010, but has been extended until 2011, with the final launch of Atlantis scheduled to herald the end of a 30 year era in June 2011. This leaves the US Space Agency with a void in terms of next generation space passenger vehicles after last year’s cancellation of Project Constellation which was developing a new spacecraft to serve the International Space Station (ISS) as well as voyages beyond Earth’s orbit to the Moon and even Mars. The interim solution for the ISS will be for US astronauts to hitch a ride on Russia’s state-run Soyuz spacecraft.  As for homegrown options, the future looks commercial.  The privatization of space is starting – at least in the US, even as rapidly developing countries including China and India ramp up their space efforts under state banners.  As space becomes more commercial what will this mean for nations and businesses?

Under Obama’s new space policy, the transportation of crew and cargo to the International Space Station will be turned over to the commercial sector. The change came into effect with the signing by President Barack Obama of the NASA Authorization Act 2010 last October.  Obama has proposed to devote US$6 billion over the next five years towards commercial spaceflight.  In the last two weeks the first of this money has started to come through, with NASA offering US$270 million of funds to four firms to help them push forward designs for new orbiting vehicles. 

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Large parts of the world are this week operating on a wing and a prayer: With high levels of damage, low levels of preparation and many unknown factors, desperate people are relying mainly on hope to avert potential disaster.  Japan is racing to avert a nuclear catastrophe in the aftermath of the massive 9.0 magnitude earthquake and subsequent tsunami, which killed thousands, made almost half a million homeless and has significantly damaged the economy.  The Libyan war has started, as UN-backed forces begin their mission to drive regime change in support of the Libyan rebel forces.  Egypt is at a critical point in its transition, as people embrace their freedom in voting on constitutional reforms which will shape the country’s future.   These events will reshape our world in ways we do not yet know: Our thoughts and hopes should be with those in the front line.

In Japan, the earthquake was not the issue, but rather the devastating tsunami waves that utterly destroyed towns and knocked out power at the Fukushima nuclear reactor complex. Since then, the hundreds of thousands displaced by the tsunami and radiation fears have been battling freezing weather, even as food, water, power and shelter run short.  At Fukishima, desperate measures to cool the reactors have been taken all week, with hopes for stabilization by restoring power supplies today again knocked back as pressure rises in Unit 3.  Radioactive gas will once again be released into the air to relieve pressure and try to bring the unit back under control.  Radiation has already found its way into the food chain, with spinach and milk up to 120 kilometres from the plant showing iodine levels above safety limits. Tokyo, some 240 kilometres away, has seen miniscule amounts of radiation in tap water, while Taiwanese officials have reported higher than permitted levels of radiation on fava beans imported from Japan. While officials maintain that the amounts of iodine detected pose no threat to human health, the public is shunning potentially contaminated food and water – concerns are high and prices of basic necessities will rise.

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The eyes of the world remain on the violence in Libya and the ongoing unrest across North Africa and the Middle East, with oil prices reacting to the potential disruptions to a critical resource.  Further south, the countries that offer some of the world’s richest reserves of minerals are also undergoing fundamental changes, BRIC-style. As the world enters a period of potential resource scarcity, the scramble is on to secure future supplies of critical raw materials.  Africa has plenty to offer (as an FT graphic shows): Oil, timber, coal, copper, bauxite, gold, diamonds, uranium, gas and more. And despite significant economic and social development improvements in the last decade, many economies on the continent still suffer poverty, skills deficits and high levels of unemployment – making the context right for wealthier nations to come in and help boost African development, often in exchange for resources.  As China, India and increasingly Brazil compete to seize the opportunities, a phrase originally used by Warren Buffett in 2003 to describe the US trade deficit comes to mind, “colonized by purchase rather than conquest.” Is this a risk for African nations (and potentially other resource-rich countries)?  What are the implications?

A February report on Brazil’s investment in Africa by Reuters highlights the fact that in sheer financial terms and companies on the ground, China leads the pack by a long way in the scramble for Africa’s resources.  In 2010 China’s trade with Africa reached US$107 billion (source: IMF) versus US$32 billion between Africa and India, which has also been boosting its position in recent years.   This puts Brazil, with US$20 billion in trade in 2010, in third place, with Russia trailing a distant fourth among the BRIC with just US$3.5 billion of trade with Africa.  China too dominates in terms of overall investments in Africa. South African consultancy Frontier Advisory quoted in the Reuters report suggests that by 2007, cumulative Chinese foreign direct investment (FDI) in Africa had reached US$13.5 billion, or 14% of all Chinese FDI. In contrast Brazilian FDI in Africa between 2001 and 2008 is estimated at US$1.12 billion.  This is not surprising – China has a much weaker overall resource position than Brazil, plus much deeper coffers in terms of foreign exchange reserves to underpin its investments. Since 2000, China has established a series of resource-backed deals, with strong government support and financing, in which African nations handed over oil, bauxite, iron ore and copper and cobalt in exchange for dams, power plants and other infrastructure projects worth billions of dollars.  The aim: Secure future access to resources to power China’s continued rapid economic expansion.  On the back of these investments, some 2,000 Chinese firms are now operating in Africa, building infrastructure and helping to fuel the renewed economic growth of the continent.

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Food security is making the headlines again.  On Thursday the UN Food and Agriculture Organization’s (FAO) Food Price Index showed global food prices at the highest level since records began in 1990. Up for the seventh month in a row, prices are well above the 2008 levels which sparked riots, and the FAO noted they were likely to rise further. This is one of the reasons Nicolas Sarkozy, taking over the rotating Presidency of the G20 for 2011, put addressing commodity prices including food as one of the priorities on his agenda.  The World Economic Forum in Davos discussed growing food security challenges, with World Bank President Robert B. Zoellick suggesting ahead of the meeting that the biggest challenge facing the developing world in 2011 is the risk of a big boost in food prices.  With the events unfolding in Tunisia, Egypt and beyond it is clear that this warning was very prescient.  While the fundamental reasons for the civil unrest are many, increasing food prices combined with increasing poverty have played a role.  The question is where to from here in terms of future food security?  Can we actually do anything to rebalance supply and ever-increasing demand?  What are the implications for business?

Since the end of last year it has become more and more obvious that the world is facing greater challenges in terms of security of basic needs: food, water and electricity.  As the world population hurtles towards the 7 billion mark in the next year and possibly over 9 billion by 2050, the pressures will increase – but it’s not just population which is impacting our ability to fulfill basic needs.  Natural disasters, which the UN estimates cost the world US$ 109 billion in 2010, have flooded arable land, damaged crops and more.  Climate change is leading to desertification of large parts of the world and more volatile weather conditions impacting crops.  High levels of waste in the food supply chain – estimates suggest between 30% and 50% of food grown – mean we grow much more than we need.

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This may be one of the weeks that redefines the shape of the world, although the impact is as yet extremely uncertain.  The civil unrest that started in Tunisia, toppling the government, has spread rapidly and often violently across North Africa and the Middle East.  Protests in Yemen this week have called for the resignation of President Ali Abdullah Saleh. There have also been protests in Algeria, Sudan and Jordan, which may yet gain momentum. But the focus of the world has been on the growing civil unrest in Egypt as thousands of protesters call for the departure of President Mubarak after 30 years of rule. It’s no longer just the better educated but also the very poor. Unlike the rapidly developing economies of Asia and Latin America, the Egyptians have been becoming worse off. Prices of basic necessities have increased, unemployment rates are very high, particularly among the young who make up a substantial part of the country’s population, and Egypt has weak ties to take advantage of globalization.  Add in an authoritarian regime which has repressed basic human rights over decades, and religious tensions. The mix has proven explosive – and it is a recipe echoed across the region, which don’t forget controls the majority of the world’s oil reserves, causing huge concerns globally about economic and geopolitical destabilization.  With all this going on, why have so many of the world’s “great and good” been paying vast amounts to spend the week up a mountain in Switzerland?

Davos Man, and Woman (more were mandated by the organizers), convened under the headline “Shared Norms for the New Reality” this year.  Announcing the theme, the World Economic Forum (WEF) said it: “Reflects the foremost concern of many leaders today - namely, living in a world that is becoming increasingly complex and interconnected and, at the same time, experiencing an erosion of common values and principles that undermines public trust in leadership as well as future economic growth and political stability.” Topics for debate included: 1. Responding to the New Reality; 2. The Economic Outlook and Defining Policies for Inclusive Growth; 3. Supporting the G20 Agenda; 4. Building a Risk Response Network.  A good agenda when looked at from the perspective of the elite group of politicians, financiers and business leaders gathered in Davos, and one which reflects some of the critical issues facing a two-track economic world including financial reforms, trade, sovereign debt and social responsibility.

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This week’s summit in Washington between Hu Jintao and Barack Obama was carefully choreographed to put the emerging relationship between China and the US into a positive frame.  With recent figures putting China’s GDP growth at 10.3% for 2010 and some commentators suggesting China could become the world’s biggest economy even as soon as the next decade, it is clear that the two biggest global economic powers are moving into a different phase of their relationship. Even as China is growing and assuming a greater role on the world stage, the US is starting to recognize that its own “glory days” as the world’s leading military, technology, education, and consumer power (to name just a few) are declining. Its status as international power broker has been damaged by wars in Iraq and Afghanistan, failure to lead on global issues such as climate change, and domestic economic challenges.  So how do the two leaders collaborate to compete, when there are clearly trade, currency, technology, human rights and potentially military tensions on the agenda?  Can they achieve a win-win rather than a win-lose relationship?

On the surface this looks tough.  President Hu has meetings today with Congress and powerful US business leaders, many of whom are hostile over trade and currency tensions, accusing China of keeping the yuan artificially low to aid exports, hurting American businesses by under-cutting them at home and making US exports to China more expensive.  Competition between the two countries appears to be well and truly alive in this area – even if Obama stresses the US$ 45 billion in new business deals, including a US$19 billion deal for 200 Boeing airplanes, that he says will help create 235,000 U.S. jobs. This is in addition to the half-million U.S. jobs already generated by the US annual exports to China which are estimated at US$100 billion. Add in the fact that China is moving up the food chain in terms of its technology skills – it’s no longer just a mass producer of plastic low-cost goods but an emerging high tech powerhouse with massive investments in future-focused technologies such as clean tech and capable of building its own stealth fighter. And it has the education system to deliver more where this came from: “With China’s debut in international standardized testing, students in Shanghai have surprised experts by outscoring their counterparts in dozens of other countries, in reading as well as in math and science,” according to the New York Times just over a week ago.

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When Muhammed Yunus, winner of the 2006 Nobel peace prize jointly with Grameen Bank "for their efforts to create economic and social development from below," pioneered microcredit to help those in poverty improve their lives, it wasn’t meant to end up like this.  In an opinion piece in the New York Times entitled “Sacrificing microcredit for megaprofits,” Yunus sounds deeply saddened that the almost impossible challenges he and Grameen Bank have overcome are being derailed by increasing commercialization of microcredit.  In India there have been large-scale problems of borrowers defaulting on microloans, closely linked to an increasing number of suicides amongst the poorest who have no ability to settle their debts, devastating families and communities. Yunus himself is also under pressure, particularly in his home country of Bangladesh, where there have been sharp attacks on him personally as well as on Grameen. What’s gone wrong? What’s the way forward?  As businesses step up to the challenge of integrating social responsibility into their business models, how do we avoid making a killing in the completely wrong sense of the phrase?

Microcredit’s reason for being is to provide loans to low income clients, both individuals and micro-businesses, to help them move out of poverty (note: microcredit is part of microfinance which includes savings, fund transfers and more). People with little or no cash income or assets are not served by the traditional financial system – in our recent special report on Retail Banking we note that the “great unbanked” includes around 2.5 billion adults, more than half of the world’s adult population, who do not use (or have access to) any formal (or semi-formal) financial services.  Without access to financial services, including credit, many of these people are at the mercy of local loan sharks and do not necessarily have the means to help lift themselves out of poverty.

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