How Internet-Enabled SMEs Reach out to the Global Market

23 October 2013 - A Workshop on Access in Bali, Indonesia

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This text is being provided in a rough draft format. Communication Access Realtime Translation (CART) is provided in order to facilitate communication accessibility and may not be a totally verbatim record of the proceedings.

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     >> NICK ASHTON-HART: Good afternoon -- sorry if you are now deaf -- Welcome to the session. My name is Nick      Ashton-Hart; I'm the Geneva representative of the Computer and Communication Industry Association.

     The Internet has become central to trade of all kinds and people think of the Internet and trade, they tend to think of big commerce sites or search engines but really there's compelling evidence that 3/4 of the benefits actually accumulate to traditional industries On a pretty even-handed basis.

     But the Internet itself has created markets which are highly transparent and efficient and create low barriers to entry to what is effectively a global online market. But little attention is actually so far in economic literature focused on how transformative that impact is for SMEs Even though small- and medium-sized enterprises are upwards of 90% of the economic activity in pretty much any country that you name.

     This shift will have profound impacts on trade and development and given we know from principle of network effect that the economic and other value represented by each Internet user is actually increased with every new Internet user who comes online, and we know slightly less than half of all the world's population is online, we can expect the changes we have seen so far are really just the beginning of the impact that we will see. Interesting number that I calculated for a report based on ITU statistics last week found that year-to-year the number of new Internet users who go online for the first time every day was about half a million last year. It's about 668,000 this year.       

     To give you an idea -- I mean, I use this because it worked at home because that is the population of Geneva in six hours, population of Switzerland in six days and about 250 million people in a year. And it's accelerating. So this is a pretty topical panel to talk about how 90% of economic activity can be transformed using the Internet as a way of meeting markets.

     For that we have Farid Maruf of the Grameen Foundation in Jakarta on my left and Usman Ahmed of e-Bay on my right and hopefully, he says, Anne Miroux who is meant to be on my right or left and will hopefully appear at some point during this.

     So I guess the host country's privilege is to go first. So we should hear from Farid about Grameen's work and of course you'll see a presentation behind us.

     >> FARID MARUF: Okay. Thanks for that. I have a first-class helper here. Thank you very much.

     My name Farid Maruf. I work for Grameen Foundation. Some of you may be not yet familiar with what Grameen Foundation is. It is something that is inspired by the work of Professor Unis and we are a poverty-oriented organisation, non-profit NGO, and in addition we work on that area of -- microfinance what we -- technology. Currently we focus more on building social enterprise, small enterprises, small social impact businesses. And when we do our work, we actually or when our work as part in the world we have four main pillars when we work with the poor which is the poor have problem of insufficient income and insufficient income, they don't have the ability to tolerate shocks and manage stress and then lack of essential and actionable information, and last part is they are sometimes not really understood by the people. So by anybody, company, corporations, you know. So sometimes the services were designed for them by people who actually are not really close to them.

     So next, thank you.

     The way we work, we have three solution areas covering all those four pillars. We have information services. Then we have financial services. We have tools inside. This is where we try to help organisations to focus more on helping the poor. Information services, this is where I guess I get invited because this is where Internet play a part. We build several solutions over the years regarding health, agriculture, especially in Africa. When we talk about SMEs, we are actually talking about microenterprises so microentrepreneurs where the business only have one or two people working with them or sometime this is a family. We provide information services for this business so they can get additional income.

     On financial services we provide knowledge, financial services products like microloans, mobile and financial services, like mobile money, this is later I will tell the story why it becomes exciting in the development work. And then also inclusion products, insurance, banks, saving and so forth.

     The last one is poverty tools and inside where we create tools, put on the cloud Internet where organisations could focus their work to have the poor, not only targeting the right poor people but also measure the impact. We create a tool called focus on property index based on census of how each country and then we come and ask 10 different questions to put you in where actually in the poverty scorecard between 1 to 100, where are you. If the company or organisation want to target this group of people then they can use this and design the correct product for it.

     Next slide. Poverty -- this is the data that we just got this morning from World Bank, 60%, almost 147 million, live under $2.50 APV. 64% of them living in rural area. Then if we look at it (inaudible) is the highest incidence. Interesting thing about this is in Internet only 20 million users but we have two 49 mobile cellular numbers. We have 250 million people in Indonesia but 245 mobile numbers. I mean, even a baby have them. But actually because we like to have mobile, most people like numbers. I myself have two, some people have three I guess. The fact is that mobile penetration is 85% in Indonesia. So if you look at this, there's a 60% of people poor and then 85% mobile users, potential for subset of poor people have this mobile phone which is actually what we have seen for the last few years. We see more and more smartphones in the audience.

     Focusing on what we do, in financial services in Indonesia, we are providing microfinance. Help of running Grameen model microfinance. We have focus on property, help with some companies. I guess at this moment total of people using reach out by focus of property around two million and then the last one, this is what we look for small/medium social enterprises and help them come up with idea. We provide them funding between $200 50 to 500,000. Lot of money where after they run out, they owe everybody money, before they go to their first round of investment, this is where the sweet spot between winning business competition and first round of fundraising.

     So we have several successes in this area. The interesting success that I want to tell the story of here is the company that we incubate. Grameen Foundation is a non-profit, not supposed to do a business. We should not receive income in Indonesia. Therefore we are looking, incubator company, small/medium called Ruma, social enterprise maybe you don't -- you are familiar with the terminology of social enterprise meaning they have double bottom line meaning they have profit bottom line and social bottom line. That means -- if they don't meet social impact and social impact is defined. So Ruma is a SME that build a network of microentrepreneur. That is in Indonesia we call it small shops where they are selling daily necessities. We are trying to equip them with additional popular products, selling digital products. This is inspired when they start in Bangladesh, give it a loan and then the loan will be used to buy a phone and the phone then rent to the neighbors.

     We are trying to replicate this in Indonesia. In the first three months we find out we are failing. Reason is simple, because everybody have phone. Everybody have mobile phone. Nobody renting phone anymore, some Indonesian remember back then we have a -- you couldn't find any -- some people have two or three phones because they have different mobile telecom operator that offered special package. If I call my friends I use this one, if I call family I use another one, this kind of thing.      Then we find out one of the best ways of helping them is create ability for these small shops to sell air time. It was started from air time but then we equipped them with additional product. Digital product. So this project was funded by Qualcomm, an American company that, in telecommunication. That from selling air time Ruma has become a very known for the reason they are building network of people, network of small      enterprises.

     Currently they have 15,000 small shops selling from air time to -- prepaid electricity, paying installment of motorcycle which is before some people have to travel through the town to big cities. Now they can do all in the last mile remote area to the next neighbor. Stream of income for this small and this has been seeing new ways of improvement by the bank of Indonesia, trying to push mobile money. Mobile money is one of the best tools to buy properties because it's most efficient way to transfer small money from big city to villages and the villages to big cities. This is the economy in villages and at the same time villages can send money efficiently to the son who study in big city.

     How do we, Ruma, help this? This is what we call microfranchise. Basically franchise has four elements. Mostly three element but microfranchise have the fourth. First one is idea. When you have money, not necessarily you have a good business idea. What business do I want to do? So franchise helping you to have that business idea. Number two is knowledge and tools. I believe none of you will -- not all of you could be a successful restaurant, business restaurant, except if you are running McDonald's. Why? Because McDonald's is a franchise. So clear what to do. You have books, training, all the things in a manual. Some of you may be expert in -- have a lot in restaurant but for those who never have business restaurant, maybe having a franchise McDonald's, Burger King or ice cream, it's easier, so McDonald or other franchise provide you know how to run business and tools.

     In our case we create knowledge, how to sell air time, how to sell mobile to the villages. We create two of them, server so they can connect and talk to switches to multiple payment facilities. Third one is -- if you run a successful business risk becomes less for you. If you start going to somewhere you never been before there's a risk to fail, especially you have no knowledge of it. Last one is capital. Capital, with respect to MFI we have, we give them one-day credit supplier credit so they can sell this product for one day, next day we collect them. This is capital we help them with.

     Currently our microentrepreneurs in Ruma -- currently, no, no, no. Sorry. Okay. You are one of the microentrepreneurs? Currently the current Indonesian can do air time sales, prepaid electricity, you know, market Intel against, mobile agent, and market intelligence surveyor, where we create survey tools where all these ladies who are selling daily necessities like this could become surveyor, they can act as a enumerator to ask certain things about, for example, about environment, about product, so they have the survey they conducted so they can get compensated. This is easier for us to compensate 10 cent, 1 cent because we are using air time to travel that money and then they can sell it again. This is how efficient, otherwise, if it's difficult they can send to physically sent to people. Mobile money agent. This is where they can become cash in-cash out. People can come later and collect a if they want transfer they can deposit or want to cash in they can ask for the money.

     This is a very good model because problem for many mobile money agents is managing cash flow. There's a lot of people more cashing out rather than cashing in. So sometime mobile money agent facing problem, have no cash but if they have business then income from the business can become cash source.

     Financial inclusion agent. We are trying to work with some banks so they become agent of collecting saving. So the people in the poor does haven't to travel so many kilometers. They can go to these ladies and deposit the money and then the lady will deposit it into the bank through their account and then confirmation comes through.

     This is what we have been doing so far. Our plan is to develop during the Ruma and now we are also entering the business tool called Tower Works where we expand our coverage, not only we -- focusing on the poor but we also are focusing on the organisation who help the poor and this project also get helped by eBay. We got grant from eBay to create a marketplace. Part of Tower Works will be marketplace for village and people to promote their product, sell product based on location, currently we are focused on agriculture product.

     Now, where do we go now? We since we said we are going to small/medium enterprise, micro, we want to cover these three areas based on knowledge we have from other part of the world which is mobile financial services, poverty -- and agriculture information, ideally with the project that we just completed with the help of eBay team, we want to create a marketplace where farmers could get additional income, not only from their farming but also from other services like providing a input supplier to the farmers surrounding them. Input is seed, fertilizer, those kind of thing. And also they can, we have a project programme in Uganda where farmer is providing knowledge, funding practice, and for every practice that they deliver they get compensated.

     Also we have a project where farmers become a enumerator to collect data for certain organisations like FAO so farmers could receive additional income.

     There is another slide actually. This is one of the projects that we completed here called -- and this is a job market for low-skill, low-income work. Informal work. Now, the system is smart enough to get this information, what kind of work I am interested and where is my location and match it with the supplier of the job that is closest to my location. So if SME is looking for, SME working in furniture looking for Carpenter they will look for them close, living closely, not from different island. So this job market enable for both of them to be connected. Now, job market is just only a salary but later on you can create another channel where you can offer, for example, other services, photography for wedding in the villages or you know tailors or drivers, security, those kind of things.

And product as well like fertilizer, seed, even like farmers want to consolidate transport. Want to sell crops to the villages and they can find who offers them share that closest to their location so they can save costs together. This is something we are working on with marketplace that we built currently to expand that and the other part of the -- we are also looking to implement this in the Philippine and also in some part of Africa.

     That's actually the way we -- Grameen work on the small/medium enterprises. Thank you.

     >> NICK ASHTON-HART: Thank you. We have enough time that we could take a couple questions for Farid if you like before we turn to eBay if anyone has anything in mind. Otherwise you can think of some. You could shout or the microphone is coming.

     >> Thank you very much. I'm Don Hollander, I have a   micro -- little business in New Zealand selling secondhand books. And we use the Internet for that. One specific question. The local, is that permanent or just casual staff or both?

     >> FARID MARUF: The idea is to have people to find a job that small pay, small scale, related sometime for men in work like factory workers or temporary works or service.

     >> So it would be both?    

     >> FARID MARUF: Yes.

     >> Thank you, more general question. The issue I'm seeing throughout the developing world is who I want to sell books to. I'm happy to sell books to developed world as well, but is getting money from them to me so in the developing world, there is a good banking system, lot of trust, and so they can pay by using their credit cards or their credit cards through something like Paypal but in the developing countries, there is no trust so is your Foundation doing anything to help facilitate that trust either with developing a Mastercard, debit thing and having that distributed as part of your mobile money, that sort of stuff?

     >> FARID MARUF: Yeah, we not specifically build trust but specifically building the product for using mobile money for these people. For example, we know in one of the successful stories in mobile money is in Kenya. In Kenya you can pay taxi using mobile phone. Just transfer that. But as I said, what happened in Kenya not necessarily could happen in other part of the world. So there is no other success stories about mobile money except probably Tanzania but other countries are trying to replicate this.

     It is when it comes to trust related to the governments' intervention. To ensure that the organisation that engages in that mobile money won't embezzle, this kind of thing, so Indonesia is very careful especially after we have this bank crisis in -- so we currently work on both sides. People who work on the mobile money working from the Private Sector side, which is helping the company like you to understand the benefit of mobile monies, micropayment, and also from the regulatory which is working with bank of Indonesia, banking industry, telco, to make sure there is healthy ecosystem. Our part is not doing that.

     What we have ability is -- we can train the agent of networks, agent of networks are people who get the cash in/cash out and finding the products. What kind of products? One good example, little bit from your question but to give you why product is important is that in Uganda we find out one product that is interesting that people like is called Me2Me.

That means you sending money to yourself. It doesn't make any sense, right? Why do I send money to myself? But for the poor people where sometimes they don't have enough cash if they have cash a little bit their families start coming to them asking for money, husband can start, you know asking the money from the mother. So they are sending that money like two weeks and a half to ensure that when they need for example for kids the money will arrive. So this kind of thing only can be found if you work on the -- and designed the product from there. This is something when you start building the benefit then I think the trust start building.

     >> Conveniently Paypal is a part of eBay and so Usman can speak about that some more. So over to you, Usman, for your -- sure, certainly you can start with that.

     >> AHMED USMAN: To quickly add to Farid's points, the branchless banking mobile money kind of trend is very new and it's mostly national in its scope and the question you were raising deals with international transactions, how do you establish trust with a consumer that is overseas, Paypal is an example, credit cards, methodologies for doing that and I think it's just a matter of time before some of the branchless banking examples get linked into those networks.

     As Farid mentioned before, branchless mobile banking, these folks didn't have bank accounts at all so it's a gradual process where first they get their account, using it for local purchasing, then they'll get, buy a computer and be able to log on to the network and access products from all around the world and then they'll say okay I need to link my bank account to one of these intermediaries so I can establish trust with merchant in some other country.

I just think it's a gradual process really early on from a particularly -- from the poor poverty standpoint for those folks but on our side in the medium developing countries, Brazil, India, China, we are seeing a very big uptick in cross-border transactions over eBay network and Paypal net work where those intermediary platforms are serving to establish the trust with both between merchant and consumer even though they live thousands of miles apart and have never met.

     >> NICK ASHTON-HART: Is there another question for Farid? We'll have time later also if you like. Seeing none...

     >> AHMED USMAN: Thank you very much, Nick, for setting this up. I hope we can -- I really think that this is a very nice segue from Farid's presentation because eBay is actually representing a very similar cohort of micro and small businesses. When someone hears the name eBay they might think of this giant Internet company which is sort of true but it's actually built and established by a large amount of small businesses, microenterprises, also sometimes one and two people, oftentimes one and two people all around the world and really a network and platform for those folks to access customers and trade in their products and then on the Paypal side, you have it used for basically anything that goes on over the Internet.

     If you are a blogger and you want to take donations blog may be read by people all over the world and tone nations may come in.

If you sell digital goods or you are an app manufacturer you need to take payments and these apps are bought and Paypal serves as method to accept payment from anybody anywhere.

     The trend is interesting for IGF because IGF from what I understand this is my first time here is focused largely on the Internet infrastructure aspects of the Internet. EBay, pay Paul these are built on top of that. And people using them are even further from the kind of infrastructure discussions. But I think it's really important to understand the benefits that everyday individual entrepreneurs are experiencing as a result of the power of the Internet and it helps to give context to the debate that happens here around privacy or data protection or some of the infrastructure issues.

     I think understanding what's happening on the lower levels of the stack really helps frame that. That is really what I'll talk about is how the open Internet, Internet infrastructure is enabling anyone anywhere to engage in global trade. Very new and exciting trend.

     Here is a picture of the global Internet and it moving over the course of a day. This was made by a hacker who hacked into I believe 400,000 computers all around the world and basically traded this graphic that lights up and shows where activity, where computers are logging on to the Internet. That just gives some context to how global the Internet is, which is something you all know. But I really want to talk about how the Internet is changing commerce because that's what our company does and what I work on. And I think it's a very unique change that is really never before been possible and never happened. Farid really talked bit on a local level where you have individual small businesses that are accessing local customers and learning about them in very new and exciting ways and using data to enhance processes.

     What is happening over eBay is really cross-border transactions, a person living in New Zealand accessing a customer in Mexico and there's the platform of eBay creates trust for retail and platform of Paypal creates trust for the transaction purposes. And so traditionally again the way in which a small business like the woman represented here would link into the kind of global commerce, globalization, commerce has existed for a long time for many years but the traditional model by which she would to that is she would somehow create a product or manufacturer a product, intermediary that would link into a giant corporations network so maybe she made she manufactured some kind of shirt that was sold at Wal-Mart and that would be the way a small business would really experience benefits of globalization and access consumers because if you are small and local it's very difficult for you to be found in an offline context.

     To reiterate that in a more robust fashion you would have a very standard supply chain that got created where the manufacturers are in one country, export handler, go through containership and on and on. Very traditional model for trade where manufacturer makes some intermediary product, goes through this chain with several players in between to get to consumer.

     What we are seeing in the Internet age is a vastly more efficient model I think where a lot of traditional players have been kind of disaggregated, “disintermediated” is the term. You have a manufacturer, retailer so the same person who manufacturers a shirt is able to go on the Internet create website for their shirt, and be able to access customers in other countries or in their locality. Then they simply utilize either intermediary marketer or shipping company to ship the physical product. That's the only connection between them and the consumer. Otherwise, it's a very direct connection whereas in the classical model you had nine steps between that initial manufacturer and consumer. It's not to say this model will completely kind of take over the old model. There are efficiencies to having a large supply chain but there is this parallel new model that is particularly being used by small businesses that is very exciting and very new and also sustainable so we're talking about sustainable development a lot here at IGF and interesting part of this is that it is quite sustainable so say for example you have a manufacturer who is again also has a website and creates a retail website in Turkey, for example. He used a marketer or shipper in Thailand and accesses consumer in Japan. That consumer buys the -- I keep saying shirt but say book, computer, laptop computer, buys the laptop, book was a good example, buys it in Japan and uses it for a while, decides I don't like this laptop and will utilize an intermediary marketer and shipper in Nigeria and it's bought by consumer in Cote d'Ivoire and that consumer uses the laptop for a little while decides I don't want this, uses a marketer in Colombia and ships to a consumer in Brazil.

     This model is actually possible right now. There are intermediary marketers and shippers in all countries and they would enable these businesses to access customers in these markets. So this is not a hypothetical. This is real. This happens in the modern Internet economy.

     We call this trend the global empowerment network, that's the term we've used to capture it, it's kind of a new model where anybody anywhere, any size business, can engage in the global market. What is needed for that is really four things. Internet, all we've been talking about. You need services that are part of the system, so whether it's marketing, financial services, then a website, an addressing that is part of ICANN, so you need services built on top and then you need logistics if you have a physical product. You need to actually get the physical product to your consumer.

     Then all of this, this is why we are all here I guess is laced with policy and you need to get the policy aspects right if you want this global empowerment network to exist.

     But again I mention this is not a hypothetical. This is reality. On the eBay network we have over 100 million users all around the world and over 60% of our revenue comes from non-U.S. sales. So we see this trend really happening globally and decided to do a study where we looked at some of the small businesses that were utilizing our platform, really small. We looked at only those sellers that were selling $10,000 or more in a year, that's not that much money to be selling over the eBay platform but they might use Amazon, different methods so we said $10,000, pretty small business, look at these guys. We looked at them in Peru just as a kind of exemplar of a developing country. To see what are trends with these types of sellers? $10,000 or more, living in Peru, using eBay to sell your physical products.

What happens?

     We found something pretty interesting. 100% of those businesses export to different markets. All of them. Every single seller had used to export. Whereas in the traditional offline context the figures that Peru publishes as a country only 14% of their businesses export so just that in itself demonstrates the power of the Internet. You can instantly connect to consumers outside of your locality and export and establish trust. They reach 25 destinations on average, that's on average, not all put together, that's an average they reached 25 different destinations in the offline context it was three. Market share is a very interesting figure because if you think about exporters or trade in the classical sense done by really big guys why in the traditional sense new comers only captured 2% but on e-Bay newcomers are 20% of the market.

Survival rate is much higher on the Internet than it is in the offline context and then this last point is again very similar to the newcomers's argument where it says concentration of sales to the largest 5% in traditional Peruvian trade is 91%, largest 5% have 91% of the sales whereas on eBay the largest have 16% of the shares. Very, very flat, in terms of who can access and benefit.

     Same thing held true in Indonesia. I thought I'd show the slide. Very, very similar types of findings. Similar rate of exporting, they all reach 30+ countries, we didn't have offline data but I imagine it's similar to Peru, similar market share, similar survival rate and similar concentration of sales. Very, very high numbers when compared with offline trade to demonstrate how significant the boost it is from the Internet.

     That second thing wasn't supposed to show up but the chart on your left is I think one of the most fascinating charts ever but kind of wonky and a little bit dense so I'll simplify it a great deal.

     We did studies looking at Peru, Indonesia, Ukraine, Thailand, South Africa, Jordan, number of developing countries and then studies looking at the U.S., UK, France, Germany, developed countries, largest developed countries and the findings from those studies were exactly the same. So to describe that a little bit, if you look at traditional exporting between developed countries and developing countries the figures are vastly different. Developing countries are just getting into the global nature of trade and developed countries Tom nature but if you look at the Internet platforms, it's really flat. It's the idea that the opportunity exists exactly the same for that business in Peru as for that business in Germany and there are figures to prove it.

     Share of export is exactly the same. They reach the same amount of destinations, survive at a similar rate, concentration of sales between biggest players and smallest is similar. We didn't do this on purpose. We did these completely separately. When we created this chart we were surprised that it was this flat, there was this much of a similarity of opportunity between some really big sellers who have 70 plus employees and some really small sellers in Chile who have no employees, very similar statistics and demonstrates for the first time how flat the Internet can make the marketplace, really connect consumers and merchants in a way never before possible and this thing is a case study exemplar, Khanna Jewels, husband and wife had a local jewelry shop, sold to people who walked by for several years, went online I believe in 2002, they have they are now employing 30 plus people and selling all around the world, Asia, North America, Europe, this is the opportunity, the real stories that are happening.

     And on the eBay marketplace alone, we have 500,000 of these types of merchants, folks selling over $10,000 or more on the platform. So it's a large trend. That's just e-Bay marketplace, there are others, people using services, their own websites, this is really big and it's happening.

     Last part of my presentation will be on the policy side because I said policy is what hinges all of this and hinges all of this, I should say. If the policy is right, this stuff will only continue to grow and the opportunity will only continue to be enhanced.

     So the big session tomorrow it sounds like will be on development and I think this exemplar both from Grameen Foundation and our side changes the debate about development and what is traditionally meant between the developed world and developing world andin fighting, classical battles and I just love all these examples so I'll keep using them. This is thy craftwarehouse.com, not eBay necessarily, they sell separately but they have their own website. They sell locally manufactured Thai products, they have Facebook page with 5,000 likes or something, and this is just data from ITU but describes the growth of Internet use he was around the world.

     The point is that small business in Thailand that used to be the subject of the development debate was how to get that small business to grow, because they're located in Thailand, how do they get capital, consumers, growth. That is being changed fundamentally by the Internet and by what it offers. The ability to connect socially through Facebook platforms, ability to market, ability to accept payments, all that fundamentally changed by the Internet.

     I think everybody here talks about broadband and smartphone proliferation so I won't harp on that but to say mobile phones are an amazing technology and what they have done to empower folks all around the world but the smartphone is really the step where they can take it beyond just their locality. Using a smartphone really plugs you into that global network. As I mentioned mobile phone helps you do things locally you can do banking, payments in certain countries but if you want to access global marketplace the smartphone is what enables that.

     One other concept that is really significant and not talked about enough is the idea the Internet is a stack and there are parts of the stack that are built on top of one another and at the lowest levels and throughout the ideas of openness and nondiscrimination are absolutely essential. The idea that applications living on top of these telecommunications layers are accessible to anybody is incredibly important and central to the idea of this network continuing to grow.

     Intellectual Property policy, I won't spend much time on this but the idea of balancing the enforcement of Intellectual Property rights with Limitations and Exceptions that enable some smaller players in particular to reference brands, to be able to offer major brands as products is essential so you need to get policy right on a global scale because again all these are happening cross-border.

     And lastly, the concept I was encouraged to talk about by a long-time IGF veteran, her name is Laura Denardis, law scholar in America and I was on a round table with her recently and she talked about how at the Internet Governance Forum we often don't talk about issues that are outside of the Internet, kind of traditional Internet issues and lot of what I've been talking about is outside of that. But I really want to throw out a few things I don't think anybody at the Internet Governance Forum talked about. That is really offline issues. A lot of small businesses that are engaging in this new Internet trade are detailing dealing with unique customs problems because there's never been small businesses that have sold across borders so when the -- when you reach that customer over your own website, for example, you're in New Zealand and access the customer in Peru there's no customs that has anything to do with that.

Just free flow of information, access information but if you want to send the product to them you will run into serious problems because models created around customs were not made for this new type of trade. Shipping was created for a certain type of shipment, large, always this graphic where it's like a large ship versus a smartphone. Large ship is classical trade. A smartphone is modern trade. And when you think about shipping individual items the system just wasn't designed for that. Lastly consumer protection laws, incredibly important. Particularly to Internet companies that want to maintain a strong consumer base and make sure consumers are protected but having to deal with 100 plus different regimes around the world is incredibly difficult not for eBay, for the small business that is on the platform and reaching the customer. They are the ones that are responsible to all these different authorities.

     I showed you on this other slide you have small business in Indonesia that is reaching 36 markets. They don't know the laws of the 36 markets they are reaching so the idea they can meet all consumer protection requirements, different ones, is unlikely. So harmonizing those and working together in international forums to harmonize is incredibly beneficial for the small businesses utilizing these platforms.

     And that's it. Thank you.

     >> NICK ASHTON-HART: Thanks very much. Somehow I have a feeling we'll get a few more comments from you given that you're actually doing a number of things that are said.

     Are there any comments or questions, observations?

     >> I'm also in New Zealand. I've been looking into payment stuff recently, joint venture between the banks and telecoms to do with mobile payments and enable that over the next few years but also looking at the international and for us that's coming down to very strongly the trust thing that Don mentioned earlier which is in a number of countries we might want to trade with, they are having problems with fraud and payments are generally on a pretty horrible basis in those environments in the sense of you have 180 days' exposure to people and charge-backs. Do you have thoughts what can be done because it's -- exposure for small businesses?

     >> AHMED USMAN: What I talked about in customs and shipping context is applicable to payment. You have got regulatory regimes set up for local banking and had no concept that people would be sending money across an entire globe instantly in very small amounts and so this is a bit of a copout but the first step is education to these payments to the central banks particularly but also payments regulators to say this is incredibly beneficial. The one argument to make for them that will be interesting and it's a bit controversial is to talk about remittances. Very, very high rates on remittances to a lot of countries but they want that capital inflowing to customers, they are less happy about customers buying stuff from overseas and using payments but I think discussing argument with a lot of these government officials from the idea you have these powerful communities of immigrants and they want to send money back but they have to deal with horrible regulations equally applicable and that caused tremendous amounts of problems for inflows of capital.

     If you reduce burdens and you want to get it so it's the same for -- then you can add a lot to the consumer economy. That might be my one argument to be making with these regulators is educating them about the benefits that could come from increased remittances. It's something like 9.5% gets cut from every 1 going into a developing country. Obscenely expensive. That's another way to say it. Up to 20. Average of like 9.5 or something I've read.

     >> I would observe that there was a study done on cross border buying in the EU a couple years ago and the European Union found even within the common market there was a considerable percentage of Europeans who were uncomfortable buying products from a firm outside of their own country because they were uncertain what the consumer protection regime in other EU Member States would be and whether they would be protected in case they got something other than as described. That's within a common market so it is really true not only can a merchant not understand what may or may not be his obligations but how is a customer to know how their national consumer protection laws interact with the laws that relate to the seller in the country of origin. Not feasible.

     Please.

     >> Thanks. Going back to what you were mentioning about the odd geography of online it's a equal problem in the opposite direction, as a consumer who works in Africa and gets robbed and needs to order all of my electronics I guy online and instantly my account gets shut down because I'm in we have the Africa, it happens many times in a row, they don't tell me for a week so I continue trying to use the account and I have tried that with every single online vendor I would normally use from London, all of them believe I'm some kind of fraudster and I'm imagining well not imagining all my friends in Ghana can't get books delivered or get a computer delivered. Nothing.

     So there's the same problem with goods coming into these countries which you have touched on but wondering if you could speak about what we do to combat that.

     >> AHMED USMAN: Trade facilitation agreement at the WTO would be helpful. One reason -- am I allowed to defend Amazon? One of the reasons --

(Laughter)

No I'm joking, one of the reasons I think that they have difficulty, right, is some of the regulations to deal with in those countries aren't even readily available so you don't know what you potentially are dealing with if you allowed a consumer from that country to purchase a product over your network. So that's a first step, for the intermediaries to be able to understand what they are dealing with. That's one step. I would offer that as a defense for them.

     Second step is something I mentioned earlier, this is all quite new. Gradually, gradually growing so the ability to be able to pull off these cross border transactions as an intermediary in any broad fashion requires a large amount of data about the particular consumer base and area and so it's just such a new phenomenon in Africa, particularly I was on a panel with a gentleman from Nigeria and he was very upset about Paypal there and ability to be able to buy products from Nigeria using Paypal.

My response was the difficulty is the Internet makes you global instantly so you -- we want to be global and serve everybody but there has been example of frauds in those countries and without an adequate amount of data and consumer base in those countries it makes it very difficult to provide the service.

     So I just think that one of the issues connectivity, access, as that gross and more people log into the network you have more data and more ability to be able to offer strong services. That's part of it.

     >> FARID MARUF: I want to add about the mobile known challenges in several countries especially Indonesia. One of the many countries thinking who actually run the mobile money. Telco or banks? In Kenya it's successful because there's only one telco, in Indonesia we have 11 telco and then thousand of banks. So bank of Indonesia also want to protect against money laundry using mobile money. So that's why this is very difficult for people to engage in mobile money business at this moment because there's uncertainty on regulation. It was mentioned that is important especially when bank of Indonesia decided to use the -- model, mobile money, microtransfer will be bank basis, not telco basis. If the bank is very heavily regulated bank requires KYC, New York customers, others part of the receiving end should be known who are they. So that's the challenge in micropayment transfer and this kind of thing.

     >> Richard (inaudible) also from New Zealand.

     >> NICK ASHTON-HART: Lot of kiwis in here today.

     >> I saw a representation on bitcoin and is that currency that's independent of governments and telcos and banks is perhaps something that could be used for in these situations.

     >> AHMED USMAN: I've been doing more research on bitcoin and it's fascinating so I'll answer from personal capacity.   That's one of bitcoin's promoter's strongest points about why bitcoin is a potential development tool is it would greatly reduce the cost of remittances so you would not be subject to kind of the high fees that are associated with central banks if you were able to transfer remittances over bitcoin. So it could be -- obviously, there's a lot of other factors to bitcoin related to how they are regulated and monitored but I think that's one of their main arguments is that if this kind of decentralized system is used for transfers of currency, money, then you would have, it would be a way around a lot of issues that kind of playing cross-board remittances right now.

     >> NICK ASHTON-HART: I'll tell you an interesting anecdote. I was speaking to the WTO ambassador of a southeast Asian country, I'll leave it at that, who was saying to me that the trade ministry had actually intervened in a discussion about national laws inside the country on a practical matter because it had been proposed that all mobile payment systems, all e-money systems should be obliged to have anyone who signs up for an account in that country show up with an ID at an office in order to validate because that's what banks do.

     And the trade ministry said wait a minute, that's not really the model we're looking for, for mobile money because in many countries that is not practical, even in our own country we have people who are quite poor, they don't have IDs and addresses and all of this. You have to allow for more flexibility.

     I thought that was an interesting -- I was quite pleased to hear that because it's not normally the case a trade ministry would actually say but wait a minute, if we all did that we wouldn't actually be able to use e-money in most regions of the world or for many of the people who would most benefit from micropayments.

     >> FARID MARUF: I can add little bit. Regulation now allows up to a million. You don't have to identify yourself, know your customer if you remember you buy these flash card, there's, you can buy it without even registering who you are but only limit certain things, but other use mobile and biggest challenge is agent of that village because that they will be the one handling money, that will be difficult for bank to just let go of telco can do it so that's one of the reasons mobile money is still currently under the pilot project, banks are still learning. I think at the end of two or three years, it started in June, supposed to be finishing in December. From there they probably know how to engage the last-mile agent because the key element is that more money you should find where you can get the cash out of your system. That's the essence on the mobile money.

     >> I'm from (inaudible). I'm a lecturer and the campus name is (inaudible) and just two months ago we have meeting and decided that one of the -- techno campus so meaning student will be guided to be in technology area so we call techno payment and one of our problems is limitation of resources in campus. Mostly lecturer as me also dominated in -- but like in practical so what I want to know is whether eBay or Grameen have special programme for students so we can do a kind of cooperation or something for our students. Thank you.

     >> FARID MARUF: Now I know why you invite me. In my past life I was working with one U.S.A. project called -- helping a small enterprise. In three years of my tour of duty I started a competition, business competition with Microsoft.

So actually exactly what you are looking for, having idea and then giving them $25,000 seed capital and during that period it evolved from just simple business competition into the last one I have that involved four where we are bringing venture capital from all over the world to Indonesia and finalists have to present it.

     Good thing is that I think I heard story there were out of 10 three still going strong. I work for Grameen now so to answer your question, yes, there is a business called KP, global enterprise -- (inaudible) but that is in the early stage. You have idea, you get business competition, Grameen entering when you investment ready number one, number two you have to work for the benefit of the poor. So if your solution is creating games, for example, it's not gonna fit in our thing but if you create a solution not necessarily technology but simple technology, land, water filter, solar panel, yes, we can, only thing is you have to be investment-ready, so you already pass second stage so that's my answer.  

     >> NICK ASHTON-HART: No improvement available? Another question?

     >> I have some questions but I'll make some comments in terms of consumer protection. From our perspective we operate in New Zealand but it is a challenge for consumers. And what we do to protect ourselves if there is a payment so we don't have this 180-day later we get a call by the way that credit card transaction bounced is we use trusted intermediaries, Amazon and Biblio and so forth, and e-bay would be a I think a trusted intermediary. I'm not sure. But looking at your last slide with the issues I would put shipping rules and shipping costs because they are disproportionate. Someone from the UK can send a book to New Zealand for half of what it would cost me to send the same book to the UK. The other point that well we serve international markets, that's about 40% of our business is exported books. We also do a lot of business to rural New Zealand where there aren't a lot of bookshops so you can service New Zealand-developed country but people out in the middle of nowhere still may want what you want to buy.

     My other question in terms of Paypal: Are there countries you don't work in?

     >> AHMED USMAN: We are available to users which is kind of a broad term meaning you can sign up for Paypal account as a consumer side in 190 markets but from a merchant side it's a little bit I don't know the exact number but I believe there are certain markets where it's more, where we don't offer the service right now.

     >> Nigeria perhaps.

     >> That would be an example, yes.   

     >> Is there any way for me to put money into someone else's bank account if I have their banking details?

     >> AHMED USMAN: Yes, there's called the send money feature on Paypal where you can directly send something to someone else's bank account and uses a service called international IAT which stands for international ACH transaction and that is automated clearinghouse but the idea of these banks have set numbers and transmit information so yes you can.

     >> Okay. I could have used that the other day. Thank you.

     >> NICK ASHTON-HART: A question from a remote participant.

     >> It's a long question from Matthias. One of the issues that I have heard people worry about when buying from sellers abroad is that they don't get import tax back when they return a product. Seems to be an important disadvantage of international online trade and one that also has a technological dimension to it because even if you have the right to reclaim import tax from local authority I imagine the administrative burden is quite substantial in many countries. Have you applied any sort of thinking on this problem? Seems we'd almost need to have a global customs equivalent to the marketplace that platforms like eBay provide to really establish a level playing field for the small sellers engaged in exporting.

     >> NICK ASHTON-HART: Can I say I've been a victim of that in Switzerland myself because Switzerland does not refund duty and VAT even if the goods are returned.

     >> AHMED USMAN: So Switzerland -- actually the example I'll use is from the U.S., this is a quite a problem in the developed world, let alone developing. In the U.S. if a small business shipped a product to a consumer in Switzerland and then the consumer didn't like it sent it back, to get your customs duty back as a merchant in the U.S. you have to fill out a five-page form in paper you can print it and pdf, print it fill it out has a 32-page instruction manual that comes with it and then you have to mail it to the customs bureau and pray that you get some money back. It's called a duty drawback form. We lobbied quite hard on that because it's just simply absurd, it was designed, the thing it was designed for a different world, a world where a giant manufacturer was getting a product back from intermediary which warehouses so to its credit Congress has found this is a problem and has included -- no, they've included a fix to reduce paperwork and basically eliminate it and let you apply for these kind of duty drawbacks in a simpler fashion in a bill that will hopefully get passed in the next year or so.

     People are recognizing this is a problem and the solution we offered was even beyond concept of reducing paperwork. It was actually creating what this gentleman seemed to be hinting at, online system where you can plug in details about the item online, just go on the computer and say what -- you should be able to do customer forms online, submit them online. If you need to do a drawback, do it in a couple clicks. We've discussed with them concepts of plugging in information and they get it. They're just antiquated in technology and trade so as I continue to say this is a very new phenomenon, exciting because we are on the precipice of a exciting trend where people will be engaging in global commerce but some of these classical customs regulatory issues need fresh thinking and new ideas.  

     >> NICK ASHTON-HART: It's interesting, I work about half my time on trade policy and it's interesting, we are used to the ITU and other UN agencies where the starting place of a discussion is surely we must regulate something by the end of this conversation, we must do something, we must prepare rules. Of course the WTO is starting from: What can we get rid of today? What rules can we -- how can we get out of the way of something? So it is a refreshing thing because you go through there and say something like this and they say that's a non-tariff barrier, we should get rid of that. Default response. At the beginning you have to go, wait a minute, did I just hear that? I didn't have to fight for that and they agreed with me. Ironic, this is one thing that isn't really appreciated about free trade and WTO which has a bad reputation in parts of Civil Society but ironically enough when it comes to Internet and commerce it's really a pretty friendly place in that regard.

     >> AHMED USMAN: Free trade and WTO and these entities have also had classical fights just like that existed at IGF and other places more regulatory and that was about the idea that it was developed world countries were gonna get all these regulations removed and that would let them flood the market of developing world countries and take over.

     Part of the presentation that I gave is to say when you are talking about the Internet and small guys the idea that someone in Peru can benefit just as much as someone in Germany is a fundamental game-changer. I think that's something to keep in mind as many of you will in discussions is that is the       game-changer of the Internet, it changes this debate about developing world versus developed world. And hopefully that will really smooth some of the classical battles going on in the trade space to say if we remove this non-tariff barrier or regulatory issue we'll be helping businesses in the developing world exactly the same as businesses in the developed world.

     That's the exciting part of the story.

     >> NICK ASHTON-HART: Well, I see we have seven minutes left. Is there a burning issue, burning question? Nothing online. Well, I guess we can wrap up.

     Farid, any final thoughts you want to offer?

     >> FARID MARUF: Well, actually not so much I can offer in sense of global but I think what Grameen is interested to find is SMEs that could help the poor and create jobs, create incomes. So if any of you think that there is a way for you to participate on that, please contact me.

     >> NICK ASHTON-HART: All right. Amen. A UN meeting in which real people actually get helped. I don't see that many of those.

     Usman. No?

     Well, thanks to you all for coming, thanks for the questions. I hope you enjoyed it and learned something. I learn something in pretty much every session I attend. I hope you did, too. Thanks for coming.

(Applause)

(Session concluded)

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    This text is being provided in a rough draft format. Communication Access Realtime Translation (CART) is provided in order to facilitate communication accessibility and may not be a totally verbatim record of the proceedings.

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