nextbillion

After '07-'08 Crisis, A New Focus on Food Security, Sustainable Solutions

2010-11-13T02:27:00.000-08:00

This is the first in a series of interviews with Simon Winter, TechnoServe's Senior Vice President of Development. He is responsible for leading and managing strategy, knowledge management/thought leadership, strategic planning, program development, and leading fundraising and partnerships. He is also responsible for managing and incubating innovative programs, including in India, Europe and for capital access for SMEs. Previously, he was Regional Director for Africa. Simonjoined the NextBillion Advisory Board this week.

Kevin Keepper: What has been your impression of the Obama Administration's approach to food security?

Simon Winter: While the global drive for increased attention to food security was initiated before the Obama Administration came in to office, this administration began to clearly define a U.S. commitment to this initiative. They did so by articulating development as an important part of diplomacy and defense early on. The release of Feed the Future (FTF), a "whole-of-government" strategy in May 2010 which transcends the office of USAID, was an important step in this direction. The strategy is a comprehensive embrace of four key elements: better availability of food through improved productivity and volume of production, improved access to food by increasing incomes for the poor, improved utilization of food (or improved nutrition), and increased stability of food markets and supply chains which thereby reduces the risk that the poor will fall back into food insecurity.

My impression of this effort so far is that there is still a risk that we may end up with a productivity-led set of initiatives without securing adequate channels to market. These channels are critical so that as surpluses are produced, they can deliver improved incomes for the poor producers - rather than contributing to new boom and bust commodity cycles. While the need to be market driven is given prominence in both of the two key pillars of food security, agriculture and nutrition, the implications of this in terms of practical programming are still to be seen - especially on the nutrition side.

KK: What is lacking in the nutrition component and are there other major gaps in knowledge right now around food security?

SW: At present, nutrition programs tend to be about improving the quality of food through fortification, distributing food supplements, or delivering public education programs such as teaching lactating mothers how to graduate an infant. These tend to be very single-shot efforts and do not take a sustainable, market-oriented approach - largely because they have been driven by highly skilled health professionals or development professionals rather than people from the private sector. On the business side, GAIN and its corporate partners have been doing a great job in supplying improved food and nutrients to meet demand established by the likes of the World Food Program (WFP) and national governments in need of food aid. What we are doing at TechnoServeis trying to identify opportunities for more systemic changes that will lead to growing private markets for more nutritious food.

The goal is to foster sustainable solutions that raise the nutritional level of poorer consumers at the base of the pyramid without depending on public subsidies into the future. We believe significant attention needs to be given to identifying the opportunities that private actors can play in enhancing the quality of food, in food processing, in ensuring food safety and in developing new more nutritious products for the poorer consumers than has yet been the case. And then we seek to identify the catalytic role that the public donors and their implementation partners can play in bringing these opportunities to market.

The question then becomes what might this emphasis on nutrition mean on the food supply side? Might this create new market opportunities for smallholder staple crop farmers, who are able now to not only produce enough to feed themselves but can produce surpluses as well? Among many constraints, this depends on smallholders becoming competitive staples producers - and frankly the evidence here is mixed as to the conditions under which they can be efficient producers of food staples. Many from agro-industry and the finance world, as well as a number of economic historians, observing how grain industries have developed, say it needs to be done commercially. Acenter-pivot irrigation scheme, for example, we know to work on 20 to 50 hectares of land, not on 1-2 hectares, as there is a minimum scale at which to operate economically. And rain-fed grain production is highly risky in much of the developing world. The solution would be for smallholders to group their farms and agree how to handle tractors, center-pivot irrigation and the infrastructure to make their farming efficient. But again, there are not well-proven models for this type of organized activity.

KK: Of the four key elements of food security, which is the most important to move ahead with immediately?

SW: An important point to make in this description is that food self-sufficiency is not necessarily the most efficient solution to the food crisis and to food insecurity. From the TechnoServe perspective, the access pillar is most important. We understand access to be getting markets working for food so that people can, on a daily basis, access the food that they need - taking into account quality and nutritional value - at a price they can afford. And they are doing this with sufficient income either from partaking in the food market directly or from non-food income sources (non-food ag or off-farm income). For example, your best income opportunity may be to focus on a non-food crop like cotton or a high-value crop like coffee. And if importing food produced by a neighboring country that's far more efficient in producing that maize or rice makes sense economically, why not do it that way? Those farmers who are best suited in producing rice and maize will get the best incomes rice or maize farmers are able to get. This is simply Ricardo's 19^th century concept of comparative advantage. It seems too often to be forgotten when talking about food security, and we see that in the recent food price crisis with prices swinging up again.

When countries like Russia ban exports of their key staple foodstuffs because they want to make sure there was enough available locally, trade barriers are resurrected that get in the way of an efficient flow of resources. In contrast, we are interested in increasing income opportunities and then optimizing the access to food through market systems. Now, this isn't new thinking and it does come out in the current FTF strategy. However, the models for how you get small farmers to increase their incomes at significant scale are still not well established. There are some good models around high-value crops, but when it comes to grains and staples, there's not a lot of research on how to do these things in a replicable and scaleable way.

I think because of the lack of research in how to repetitively succeed with income-generating grains and staples programs, we are seeing a cautious approach. There is a reasonable concern about trusting ourselves to allocate hundreds of millions of dollars to new programs when we don't know what the best practice is. It's easier to allocate money to things like nutrition programs, because you know if you run mass-based education programs around how to improve feeding your under 1,000 day-old child, it's going to have an impact. I think at this stage people are veering towards allocating resources to the things they know will work and therefore we will see a continuation of this behavior in the immediate future. The challenge is that this conservative behavior inhibits exactly the kind of innovation and risk-taking that is required to make a much more fundamental change.

Q: Though you alluded to one lesson already, what were the major lessons from the food price crisis of 2007-2008?

A: I think the major lesson (unrelated to FS directly) was that the distortions in global food markets brought about by advanced countries' food subsidies and food policy regimes (biofuel policy, farm subsidies, etc.) still are far and away the biggest impediments to the most efficient allocation and distribution of food around the world. Far more money is spent on those food subsidies and agricultural subsidies than is spent on development.

The second lesson is that we need to focus on opportunity as much as we focus on adversity. Higher food prices actually create opportunities for many small farmers, local entrepreneurs and processors in poor countries. And given subsistence farmers tend to buy little in the market - the downside of this mostly affects the landless and those in the most marginal climates. Food prices are now much higher and rising again and new opportunities exist for producing and processing foods in the poor countries. This opportunity is yet to be explored effectively.

Considering the food crisis and the implicit effects ultimately comes back to the point around a business-building imperative: we need to focus on value chains as an intricate part of food security. If you're developing a maize sector- look at it as a maize sector; look at the sector all the way from input supply to how to stimulate the local markets and on to regional market access.

Lastly, the food crisis highlighted the need for coordination at all levels. What you saw in terms of that reversion to more protectionist kinds of nationalistic strategies flew in the face of efforts to coordinate development regionally and globally. We have to guard against this impulse. And even within the good things that are happening - such as WFP's Purchase for Progress program that is stimulating local and regional demand to supply WFP, this needs to be coordinated more closely with those development programs that are working on the supply side.

The food price crisis was a major contributor to putting agriculture and nutrition back as a front and center development challenge - we are looking forward to seeing increasing attention to learning and applying the lessons from the new round of efforts.

Accessing Finance: Old Challenges, New Solutions

2010-11-13T02:25:00.001-08:00

(Above: Owners of Alimentos NutriNaturales, in El Petén, Guatemala. The company makes products from the native Ramon nut. The company participated in TechnoServe’s national business plan competition in 2007 and was awarded $10,000 in seed capital that helped launch the business).

This is the second in a series of interviews with Simon Winter, TechnoServe's Senior Vice President of Development. He is responsible for leading and managing strategy, knowledge management/thought leadership, strategic planning, program development, and leading fundraising and partnerships. He is also responsible for managing and incubating innovative programs, including in India, Europe and for capital access for SMEs. Previously, he was Regional Director for Africa. Simon joined the NextBillion Advisory Board this week.

Q: What are the major obstacles that small and growing businesses (SGB) face in trying to access finance in developing countries?

Simon Winter: First of all, we should be specific about whose access we are talking about here. Among the most challenged small and growing businesses (SGB) that will have a significant impact on poverty in developing countries are those comprised of farmers organized into business groups and entrepreneurs trying to build businesses in high-risk sectors, such as agro-processing. If you are a larger agribusiness multinational, you can get finance relatively easily for activities in emerging markets. Or, likewise, if you are a private individual, who is middle class and has assets, and you want to invest in higher growth sectors with relatively predictable cash flows, like telecommunications, you also can get finance relatively easily.

One of the dimensions of the obstacles these SGBs face in trying to access finance is the risk appetite of commercial financial institutions. As a legacy of the International Monetary Fund and the World Bank economic reforms of the 1990s, in most developing countries and given the risk of investing in developing countries, you have high real and nominal interest rates. As a consequence, when commercial financial institutions do have spare cash they are likely to put it into Treasury Bills or the local equivalent. And complementing this lack of incentive to finance SGBs, the local banks lack the skills to understand how to finance such sectors. They are simply not prepared to take risks on financing SGBs in higher risk sectors. This is essentially a market failure - a market is demanding capital that cannot be supplied.

The second impediment, and intricately related to the first, is that there are no well-proven models of how to help those financial institutions - and this goes for private investors as well - mitigate those risks and be able to have more confidence about lending money or investing money into these perceived-to-be high-risk communities. The SGBs we are talking about frequently lack the levels of skills, reliable sources of demand, business experience and systems, track record, and most importantly collateral that the financiers are used to.

The other main impediment is that the entrepreneurs lack the opportunity to access the type of capital most suitable to their needs. On the debt side, this would be cash flow based lending; and on the term capital side - this would be equity or quasi-equity capital that is more akin to angel capital in the advanced countries - money that is invested commercially, but is seen as very high risk where the terms of exit or repayment are highly uncertain at the outset.

Q: What role do microfinance institutions play in all of this? Are MFIs distracting? Or are they having positive effect for SGB financing?

A: I think that microfinance has been good in the sense that it has been alerting the world to the challenges of poverty. Also, microfinance has been helpful to those people who use it where it is available.

However, microfinance simply isn't available everywhere and it isn't available to all of the world's poor. Despite its very considerable achievements, microfinance is only available to somewhere between 5% and 10% of the world's poorest (roughly 150-200 million people). A great article that addresses reasons for this shortcoming is "Rigidity in Microfinancing: Can One Size Fit All?" by Dean Karlan and Sendhil Mullainathan.

While microfinance is successful in helping relatively poor people to escape the worst aspects of poverty, access food and improve their livelihoods, it hasn't demonstrated a good record in helping them to progress to the next step. People wanting to develop small growing businesses need to choose a business that has significant growth potential and need to be able to build their skills to build a great business. Microfinance is not set up to do that well.

And in the sense that the microfinance sector has captured the public's imagination and people and institutions in advanced countries have worked out how to make it profitable, it has become a distraction from the broader agenda of pursuing growth as a lever for poverty reduction. What needs attention now is that there are unproven challenges of how to establish an even more successful set of approaches in the next level up - financing impactful small growing businesses.

Q: What financing models get to the core of the challenges of access to finance? And what is TechnoServe doing in light of the challenges?

A: At TechnoServe, we are doing a number of things that we believe are elements of the solution. I would not say that we have solved the issue, but I think that we know what the problems are and we have designed programs to address those problem areas.

Our main focus in this area is in strengthening the demand side so that SGBs are presenting themselves to potential investors (and/or lenders) in a way that meets their needs so they might begin to extend finance. TechnoServe's business plan competitions (BPCs) are an important part of this demand-focus effort. Our BPCs are much more than a competition. They are an 18-month experiential training and up-skilling exercise. We have conducted 35 competitions in 14 countries over the past eight years, and these competitions have been generating a pipeline of high-quality entrepreneurs and high-quality business plans that are then linked to commercial financial institutions. And they work. In a recent study, we demonstrated statistically significant results that showed the 250-300% improved performance of enterprises that had participated in the training offered by the BPCs versus those that had not.

As a follow-up to our BPCs, we provide aftercare, which helps the entrepreneurs achieve sustainability. Aftercare, as its name implies, provides those good entrepreneurs with continued access to support services and mentors as well as introductions to financial institutions. An important element of this aftercare is the support we can provide when SGBs get feedback from lenders like "we like you, but can you strengthen your marketing plan?" or "can you get audited financials?" or whatever detail it might be that they need to address but might need additional support to carry out that project.

Another way in which TechnoServe is addressing the access to finance challenge is through the development of platforms that strengthen individual businesses that can generate social impact, but are not coming though our business plans. One such example is our East Africa Agribusiness Accelerator program. This program, which has completed a successful pilot stage, is an ANDE-linked project (Grassroots Business Fund, Root Capital and others are involved on the supply side) focused on finding good entrepreneurs that are failing to access capital, uncovering the reasons why this is so, and helping these entrepreneurs to strengthen their businesses and overcome the barriers that they are facing. Some of the interventions our team is executing include developing more robust market plans, creating stronger market linkages, putting in place some kinds of standards or certification processes, or improving their financial management practices. While we can see the essential need to help overcome the missing middle market failure on the demand side, others appear not to see this in the same light. We recently submitted the Accelerator to the G20 SME Finance Challenge. Sadly, while many good related initiatives made the final round, the Accelerator didn't make the cut into the final round. I encourage you to review these finalists and make up your own mind!

As we continue to grow these programs and refine the Accelerator approach to enable it to scale, we anticipate being able to provide a place where entrepreneurs can come to obtain the support they need to get their business financed (or at least have much higher likelihood of doing so). This will also be a benefit from the suppliers' side as they will have a place where they can access a pipeline of potential clients.

Q: Where does TechnoServe's programming fall short of being a holistic solution to the access to finance issues and what are the ways in which you see these challenges being addressed?

A: On the supply side, financial institutions and investors need to be identified who are prepared to offer products that are more suitable to the borrowers and entrepreneurs that are looking for this capital. This is a critical part of the solution. ANDE, the Global Impact Investing Network, and other institutions are some of the many new investment vehicles that are exploring new pathways from venture capital to private equity. It is important to continue to generate innovative ways to get more capital into this space if we expect to see real progress here.

Another missing piece (though not explicitly a necessary piece) is the establishment of angel networks for developing countries. The reason I mention this is that the Angel Capital Association of America represented $19 billion over 55,000 deals in the U.S. in 2008 while only a small percentage of enterprises were financed by formal venture capital and equity-type institutions. Clearly this is an effective model in the U.S. and various people are exploring its relevance and applicability to the SGB space in developing countries.

To facilitate the efficient movement of capital, the Angel Capital Association has createdstandardized tools and templates so that those seeking finance can quickly submit their proposals in a standard format. TechnoServe is beginning to develop similar standardized financing templates in East Africa, but we are certainly not spearheading this effort. By formalizing and simplifying the tools and practices in this industry, we could accelerate the growth of nascent enterprises in developing countries.

While certainly not an exhaustive list, I believe these three issues are key components of a mature capital market that would improve the ability of SGBs in the developing world to access finance.

Need Funding? Like Prizes? Innocentive May Be Your Answer

2010-11-13T02:24:00.000-08:00

"But Rob, the impact investing community doesn't do startups, doesn't do angel. The traditional VCs won't look at me because financial return expectations don't match up; traditional philanthropists won't because I'm a for-profit. Any ideas?"

Welcome to my world, where at least once a week, I have a conversation with a promising, early stage social entrepreneur. Good idea addressing a major problem? Check. Innovative, business-driven approach? Check. Exhausted the small list of impact investors and patient capitalists, without having raised a dime? Too often, also check.

There are some early stage funders out there. Changemakers is a fantastic platform that offers money but more importantly, exposure. The Gray Ghost Ventures family includes First Light Ventures, which offers promising early-stage companies up to $100,000 in investment.

Now you can add Innocentive, which we first discussed a year ago. They are running a prize-based innovation fund, and their latest challenge specifically seeks "novel, unorthodox, and extraordinary opportunities for philanthropic investment."

It's called Extraordinary and Unorthodox Philanthropy.

No, it's not an investment - it's a grant. But a grant may be just the starting point you and your social venture need. The Innocentive platform is endorsed as one of the most effective capital allocation systems around (hey, if McKinsey says so, it must be true) so if you have a world-changing idea, what do you have to lose?

Local Capacity Building and Business Development at the Base of the Pyramid

2010-11-13T02:21:00.000-08:00

This is the third post in a series of interviews with Simon Winter, TechnoServe's Senior Vice President of Development. He is responsible for leading and managing strategy, knowledge management/thought leadership, strategic planning, program development, and leading fundraising and partnerships. He is also responsible for managing and incubating innovative programs, including in India, Europe and for capital access for SMEs. Previously, he was Regional Director for Africa. Simon joined the NextBillion Advisory Board this week.

Q: Local capacity building has become something of a buzzword in recent years. Could you please take a moment to introduce the topic as it pertains to the Base of the Pyramid?

A: An important component of any development work is the establishment of effective and sustainable local institutions. In the realm of economic development these might be physical organizations like private sector enterprises, training organizations, or public sector departments that encourage investment. Other critical institutions include ethical and governance norms, the legal system as well as civil society. Some international organizations like TechnoServe, are focused on developing small and growing enterprises, given a belief that they are key to broad based economic development. However, in order to ensure such firms can become sustainable it is critical that they become embedded in a web of local organizations that can serve and assist them into the future.

For example, in Mozambique we are helping to develop the poultry industry to not only grow their own businesses, but also to have a voice with the government to improve the sector. In addition, we are working to strengthen a range of local supporting institutions - including those in the public sector. If we want to create a sustainable ecosystem, it is more and more about programs like this. Most importantly, we believe that, where possible, local support capacity should be built on commercial lines so that it gets away from the fundraising or public finance challenge and creates a base for local accumulation of capital that can be invested in staying current and innovative. For services that face challenges over affordability by BoP consumers, however, then the initial answer may have to be a non-profit one.

Q: What value-add does an International NGO (INGO) bring to the local capacity building effort?

A: The process of catalyzing change to create effective local capacity over time is what INGOs like TechnoServe, SNV and Swisscontact are designed to do. We play that role because our type of organizations have a unique ability to bring together international skills from leading private sector organizations, including individuals with specific technical skills, as well as people in the local society that understand how to make change happen. And we also have access to large international corporate partners where we can source skills.

At the moment, it appears from recent discussions with some of our donor partners that "local capacity building" seems to center around creating local versions of such catalytic organizations. The reasons include that the local NGOs are going to be more likely to stick around as part of the local eco-system, be more in touch with local needs and are expected to be cheaper.

The questions that arise here are how would such local institutions get access to the best practices, knowledge and top-line skills that INGOs are able to source? How would the local organizations raise their core funds? From where would they raise such funds? and so on... It is possible that such local organizations can take over the work of organizations like TechnoServe at a certain point in time, , but the migration path is not clear at this point. A more focused assessment of the appropriate local institutional models, including the potential for local NGOs to replace INGOs, has to be undertaken to shake out the theories of change and firm-up a realistic strategy and approach.

At this stage, I believe that there is only space for such actors to evolve in providing the more common business development services where there is an adequate local demand for such services (accounting or financial management are good examples of this). Service enterprises such as technical agriculture consulting in global best practice phytosanitary requirements, however, are unlikely for now to be able to win business, build on best practice skills and grow in a small country like Rwanda. Such institutions will need international partners for now to help them with access to knowledge, skills and funding. Finding the best way of transitioning to an ecosystem of local organizations supporting SGB growth is a nascent concept that needs further analysis, testing and focused planning.

Q: What is your reaction to "Dead Aid" vis-à-vis local capacity building?

A: This issue is currently one of my biggest bugbears as suddenly everyone in the last couple of years discovered that you need to have local capacity, local ownership, local leadership and a vibrant culture and society based on local entrepreneurs, but have not articulated a path to get there. This concept has become somewhat out of control in terms of the potential ramifications. In response to the shortcomings of aid that critics have surfaced-Dambisa Moyo's Dead Aid or Bill Easterly's White Man's Burden-people are saying we should junk aid altogether. Yet the same folks are not denying thatSMART subsidies are needed to support the development of local capacity. The unaddressed reality, however, is that local capacity building is not going to be financed privately- especially when you're talking about improving local public sector capacity. People are right to criticize the traditional aid model of flying into country X to execute a bunch of trainings and leaving on the next plane as not actually creating sustainable local capacity, but withdrawing aid and simultaneously expecting local capacity to emerge like a phoenix that can catalyze a broad based impact on poverty without any subsidized support has not been proven either.

Q: What needs to be done to facilitate local capacity building?

A: To do this well, it seems to currently be believed, is to embed the creation of local capacity into everything we do in development... and to do it all at the same time. In TechnoServe's world of trying to create sustainable and competitive value chains and support the development of local small and growing businesses, this means simultaneously finding good entrepreneurs, the right business models, helping the entrepreneurs grow their businesses, and ensuring that the institutions supporting this effort are local - with us as an international development agency merely facilitating and guiding the entire process. This is really a fundamentally flawed concept. It's difficult enough to do this stuff when you're sequencing it sensibly-finding the entrepreneurial lead businesses first and helping to strengthen them, then helping to strengthen the entire value chain-but to try and do it all at once is asking for the impossible and sharply raising the risk of failure.

The danger in this discussion is that you start to sound neocolonialist when supporting the continuity of aid - however SMART that might be - and associated development programming; and you start sounding patronizing because you're saying "don't try to do it all at once." Well, if that's how it sounds, that's how it sounds. What I can say is that we know from proven successes where we have sensibly sequenced our interventions, such as in the cashew sector in Mozambique, is that this path can and does create commercially sustainable local capacity. To achieve this (in the context of TechnoServe's work) you do have to start with the right business models, a handful of entrepreneurs who want to grow a new sector or revive a sector in an economy, and help those SGBs reach success. Then you can go on helping those SGBs form an industry association so that they can strengthen their industry. And it's not as though you have to wait until the enterprise is fully profitable to begin building the industry association; many activities can be undertaken in parallel processes, but there has to be a prioritization within that model.

At the end of the day, local capacity is a critical element of economic development and for sustainable BoP-aimed programming. So the critique is right in that attention needs to be directed to this effort. Much more carefully nuanced and thoughtful response needs to be generated to this critique than what has become prevalent in the current rhetoric.

Net Impact In Review: The Growing Imperative of Cross-Sector Collaboration

2010-11-13T02:20:00.000-08:00

One recurring theme and a growing imperative consistent across the Net Impact 2010 Conference sessions I attended was the need to increase mindful cross-sector collaborations, particularly within the field of development.

Whether the intent was to better engage the BoP in healthcare, rebuild Haiti or create a sustainable social enterprise, the presenters at the Net Impact conference all spoke to the improvements that can be made in the way we design and conceptualize collaborative partnerships in order to create positive social change.

For all of the presenters in the session on "International Social Enterprise - Operational and Implementation Challenges," successful partnerships, especially within the communities they sought to serve, acted as the litmus test for the overall success of the enterprise. Realizing the importance of cross-sector collaboration is one thing, but what are the methods for creating an effective partnership? How do you combine potentially different value propositions under one effort? And, what are the practical skills you can use to approach partnering across segments of society?

The Social Innovation session on "Cross-Sector Collaboration: Maximizing Impact through Successful Partnerships" provided experience-based insights to help answer these questions. Successful partnerships, session panelists said, require skills outside of those that are taught in traditional business school programs. They require skills you would more likely learn during a lesson on community organizing; skills such as active listening, building trusting relationships, immersing yourself and staying within the population you seek to serve, humility, transparency and accountability in practice and flexibility to explore ideas and solutions as a group - not entering into relationships with a predetermined solution. Collaborations require both recognition of the value you and your partners wish to bring to partnerships as well as extensive knowledge of historical context. Each sector requires different sensitivity to the political climate, internal culture and regulatory system.

Together, collaborators create new agendas to address areas of interest, decide how the defined goal can be reached, and collectively work to improve current conditions. Short-term engagements with collaborations are often less risky and therefore, at times, present more appealing commitments; however, long-term collaborations possess the potential to create systemic change. Benchmarks can serve as one method to take broad goals and define them incrementally, reassessing and enhancing approaches with each benchmark addressed.

While the session on "Cross-sector Collaboration: Maximizing Impact through Successful Partnerships" provided an overarching argument for and description of collaboration of this nature, the session "Haiti Onward: Rebuilding for Success" provided a tangible application of coordinated collaboration as the most effective method for addressing post-disaster aid and development. A common criticism of aid work is that there is no systematic method for ensuring that redundant activities are managed (or reduced in some cases) to make certain that money is spent on the most impactful/sustainable initiatives and that the spectrum of needs are being addressed with available resources.

Haiti Onward is an orchestrating entity that organizes initiatives to create a collaborative and unified movement for change within Haiti. Its work aligns skills of a variety of groups to operate effectively and efficiently as an "ecosystem of workers." Within the initiative are partner organizations that intend to stay in Haiti long-term and to transfer skills/capacity to Haitian partners. (You can read more about partner organizations within Haiti Onward here). While meeting immediate needs is a focus, identifying antecedents of current problems and addressing these larger systemic challenges with sustainable and locally-sourced solutions directs the majority of the work under the Haiti Onward initiative.

While none of the panel speakers were Haitian, their involvement was framed in a way that made Haitians the central change agents. The non-Haitian partners' long-term goal for this collaborative effort is to "make yourself not needed and leave a sustainable infrastructure, all the while providing continued consulting services when necessary, noted Sam Bloch, Founder and Executive Director of Grassroots United. Its initiative provides one example of how long-term collaboration may change individual roles, but that the system remains intact.

The reality is that individuals, whether in Haiti or elsewhere, do not operate in separate philosophical silos in their everyday lives. Rather, they interact with and are often bombarded by different forces (business, social, economic, psychological etc.) in daily activities. Why then, would we approach solving human problems through development without the same regard for intersections of sectors? It appears the shift within the field of development is already underway. Despite the challenges, professionals operating within different sectors in society are increasingly aware of the importance of cross-sector collaboration in resolving larger social issues.

Tough Stuff Fortifying the Base

2010-11-13T02:18:00.000-08:00

A teacher purchases uses a solar panel to power an accompanying lantern, keeping her school illuminated. One of her students listens to an educational program (or maybe the occasional football game) on a radio powered by the household solar panel. His mother texts her employees via a mobile phone, electrified earlier in the day from the same panel.

This electrified ecosystem is the vision ofTough Stuff, which is working to bring low-cost energy to the BoP (and I don't just say that because it was recently named among the winners of the 2010 Tech Awards, which will honor the company and others on Nov. 6).

Based in Mauritius, Africa, Tough Stuff has the familiar, loftier aim to alleviate poverty, enable education, and enhance health, safety and quality of life by selling solar-powered products. Even before teaming up together to build a series of products, Tough Stuff's founders, Adriaan Mol and Andrew Tanswell, each developed the belief that lifting people out of poverty is not achieved by the traditional development aid approach, rather by enterprise solutions. Creating wealth, or helping decrease expenditures, are the only long-lasting ways to help the impoverished, say the partners. This founding philosophy quickly formed the base of the founders' mission.

Because Tough Stuff furnishes a devastatingly low-income population, cost management is paramount. No Tough Stuff product exceeds US$10. While the firm is not the only enterprise to sell solar powered lanterns and charging strips, it is one of the few that provides a modular option in which consumers can purchase detachable components of the technology, making it more affordable. The complete menu of products includes solar panels, LED lamps, cell phone connectors, radio connectors, and rechargeable battery packs.

(A range of devices, including cell phones, LED lamps, battery packs and radios all powered by a Tough Stuff solar panel. Courtesy: Tough Stuff)

Tanswell notes that because most energy dollars are not just spent on lighting, but on charging cell phones and listening to the radio, the company's products would have to accomplish more than just extinguishing kerosene costs, in order to lessen poverty. If Tough Stuff had only cut kerosene from a consumer's shopping list, there would still be cell phone expenses and radio expenses eating away at their savings. Modularity fosters individuality by allowing a consumer to select only the appliances needed to feed his/her particular energy appetite, while trimming the fat on less crucial elements. Of course, this process conserves energy usage as well, by eliminating products and energy consumption that one does not find necessary to their daily functions.

Despite the apparent benefits of customizable solar powered products, how does Tough Stuff get consumers to foot the bill? The reality is that those who live off the grid typically live in rural areas, and are subsequently even poorer than the typical poverty common to the developing world. In these communities, perks are certainly of secondary concern to feasibility. So, how does Tough Stuff make the sale?

First, according to the company, products can pay for themselves in as quickly as two months due to the steep cost of kerosene and other less desirable alternatives. (These savings total approximately US$98 dollars of savings per year, not counting the hours of productivity gained by the owner.) For a product that can live anywhere from five to ten years, that is a pretty enticing bargain. Central in convincing consumers to dedicate a large percentage of their earnings on one small household item is delivering a durable product in return. If a Tough Stuff solar panel falls off the roof, it won't break, if you drop the phone charger, it will survive, and if you step on the radio, it will still crank out the tunes and the news as promised. Although this sounds like a line from a practiced car salesman, in the instance of Tough Stuff, quality is more than just a perk - it's a requirement, as indicated by the company name.

Design is another factor that influences purchases in the developing world, the same way that it influences purchases in the West. Attention to small details, such as ensuring the solar lamp looks like a conventional lamp that anyone on the street would be able to recognize, is crucial to its receptivity. Similarly, the ability to touch and feel a product increases the chances of a purchase.

The third way in which the Tough Stuff model jumps the poverty hurdle is by allowing consumers to rent products instead of laying out the full funds in one lump sum. Business in a Box, as it is called, not only lessens immediate expenditures, it also increases wealth by creating a business out of the rental service. After being trained in operating and installing the solar products, local entrepreneurs set off to earn their income in rentals. One such entrepreneur quickly earned Tough Stuff fame by identifying a need and willingness for parents who would rent lamps for their schoolchildren to facilitate their studies. What began as 30 lamps soon became a rental business of 150 lamps.

For Tough Stuff's founders, solutions for the BoP are relatively attainable for those who have the right amount of passion. As Tanswell puts it, Tough Stuff's early accomplishments (and of course their subsequent success) weren't "born out of a lab or a college MBA course, rather from entrepreneurial background." When asked what he sees for Tough Stuff's immediate and long term future, Tanswell remarked that he and his team "don't plan on standing still."

Friday Roundup - 11/5/10: Suicides, Repayment Rates and Other Soundbites

2010-11-13T02:16:00.000-08:00

Housekeeping note

Today I'm introducing a few changes in the format of this Friday Roundup. In addition to a short post about and links to noteworthy news in the social enterprise space, I'll include three sections that may help you stay up to date with what's being said on NextBillion (the last few weeks have averaged 2-3 posts per day... that's a lot to keep up with).

The first new section, In Case You Missed It, is a list of what was published on NextBillion on the corresponding week. The second one, Make Sure You Don't Miss It, will include relevant events and opportunities you should be aware of (if you know of anything that should be on this list, please do email me. I'll appreciate it.) The third one,NextBillion Archives, will include older NextBillion posts on topics relevant to the week's whenever possible. There's so much good content hidden inthe archives of this site, we thought it would be great to undust some of it. Hat tip to Bryan for bringing up the idea just recently.

I hope this is helpful, and would love to hear your reactions and suggestions.

* * *

Repayment rates and suicides: The perils of oversimplification

Microfinance is under fire these days. The Wall Street Journal, Financial Times and many local outlets have reported on policy measures that have followed alleged abuses committed by microfinance institutions in the state of Andra Pradesh. Reportedly, over-indebted customers, under pressure by MFIs using coertive practices, have commited suicide in the villages of AP. In response, the state government has run down measures that allow banks to lend to MFIs, which is likely to produce a major liquidity crisis in an industry that has relied on this funding to fuel its rapid growth recently. The news come just weeks after the successful public offering of SKS, the largest MFI in AP.

Now let me ring a "soundbite alert". Headlines with "suicide" "microfinance" and "customers" in the same line can go a long way in oversimplifying the effects of microfinance and MFIs on the lives of the poor. They can steer debates in the wrong direction and lead many to conclude that microfinance not only doesn't work but actually destroys the lives of the poor. Conversely, other soundbites like "99% repayment rates", coupled with two or three feel-good stories can also oversimplify the effects and viability of microfinance, making it look like a panacea for the poor.

Whenever I need food for thought on anything microfinance, I turn to David Roodman at the Center for Global Development. His excellent blog on microfinance is full of useful resources to understand what's really going on in Andra Pradesh. In addition to Roodman, CFI's Elisabeth Rhyne chimed in this week with an excellent column in the Huffington Post about the crisis in india. I encourage you to read it if you want to better understand the policies that rule microfinance in India and how they compare to those in countries like Bolivia and Peru, where microfinance has also grown significantly. Rhyne's column is rich in examples and its conclusion resonates with those ofIntellecap paper on this crisis and Aavishkar's Vineet Rai's HBR blog post: state paternalism is not the best way to protect the interest of customers and it ultimately limits the choices available those it's trying to protect. The danger of over-indebtedness and customer abuse is real, but as Rhyne shows, other approaches can be more effective in bringing better governance to MFIs.

Incidentally, a great conference on microfinance and its impacts took place just down the street in New York a few days ago. Tim Ogden, at Philanthropy Action, put together a fantastic roundup of the discussions that took place. I'm not even close to finishing all the readings, but a remark by Esther Duflo stuck with me as I came across it. I'll share it to end this part of the roundup: "... micro-credit "is not like textbooks. It is an opportunity as opposed to an input, and as an opportunity it is embraced in different ways by different people." Well said. Let's all beware of soundbites and oversimplification.

NextThought Monday: A Closer Look at the Numbers Behind Branchless Banking

2010-11-13T02:14:00.000-08:00

New research takes a closer look at branchless banking. Flickr User Leo Reynolds

Last week, New York Times columnist Thomas Friedman wrote with characteristically breathless energy on the prospect of mobile banking in India. Titled Do Believe the Hype, the column focused on EKO India Financial Services, which is developing a physical and virtual banking infrastructure whereby new customers open bank accounts using their cell phones and use participating small shops tied into the network as would-be bank branches.

The result, Friedman writes is:

Since opening 18 months ago, their virtual bank now has 180,000 users doing more than 7,000 transactions a day through 500 "branches" - mom-and-pop kiosks - in Delhi and 200 more in Bihar and Jharkhand, the hometowns of many maids and migrants. EKO gets a tiny commission from the Bank of India for each transaction and two months ago started to turn a small profit.

OK, fair enough, but still anecdotal. Can we really believe the hype on mobile banking actually reaching the BoP? Just a few days before Friedman's column, Mark Pickens, Microfinance Analyst who heads up CGAP's Technology Program's work with customers and agent business models, blogged Branchless Banking 2010: Is the hype justified?Pickens seemed to be presciently responding to Friedman, writing: "Just because we are excited about branchless banking doesn't mean it is living up to the promises we make on its behalf."

But through their research, Pickens and colleague Claudia McKay provide some justification for us to be excited. They assembled data on 16,708 branchless banking customers with 18 branchless banking providers servicing a total of more than 50 million customers in 10 countries. Driving the research was the important question of whether branchless banking actually reaches the base of the pyramid.

Here's what they found:

Some "37% of active clients were previously unbanked" while "in terms of numbers of people, each service we studied brought 1.39 million people into the formal financial system for the first time."

"In 5 of the 7 countries, branchless banking serves more previously unbanked people than the largest MFI."

Branchless banking organizations the team studied "are growing five times faster than the most successful MFI in the same market."

Pickens is careful to note that branchless banking is not about to replace microfinance institutions, nor did he accumulate data in locations, such as Bangladesh, where microcredit has flourished. The full study may be accessed here.

We look forward to much more data that goes beyond anecdotes. But it appears branchless banking is reaching the BoP and in a major way.

***

On Friday of last week and into Saturday morning, visitors to Next Billion encountered a boilerplate site from Network Solutions instead of our homepage. We've come to find out this was due to a server issue, which occurred around mid-day on Friday and was remedied early Saturday. We're in the process of unwinding what happened, but we're taking steps to ensure it doesn't happen again. Thanks to everyone for letting us know about the outage and we appreciate your patience.

Assessing Grameen Foundation’s Progress Out of Poverty Index

2010-11-13T02:07:00.000-08:00

The Net Impact session on "Beyond Microfinance: Investing in the Developing World" was timely in that it highlighted the certification program for the Grameen Foundation's Progress out of Poverty Index (PPI). I thought I would take this opportunity to highlight some of the potential strengths and possible shortcomings of the 5-month-old certification process.

What is the Progress out of Poverty Index?

According to the Grameen Foundation, "The PPI is a simple and accurate tool that measures poverty levels of groups and individuals. Using the PPI, MFIs can better determine their clients' needs, which programs are most effective, how quickly clients leave poverty, and what helps them to move out of poverty faster."

The tool is adapted to each country by using their national household survey (or another equivalent survey) to find the indicators most highly correlated with poverty. These indicators are then narrowed down to a set of 10 (see diagram below) that will be used to quickly evaluate movement out of poverty within MFIs.

(Source: Grameen Foundation PPI)

How is the PPI value proposition different from other evaluation methods?

Grameen Foundation promotes the PPI approach as a cost-effective, easy-to-use method for evaluating poverty. The tool requires measurement of only ten items, all of which are observable upon visiting the borrowers' households (i.e., type of flooring or roofing). Additionally, analysis of results may be done quickly by adding weighted values for each question, which total to a score of 100. Individuals' progress out of poverty is determined on a scale from 0 to 100. The measurement is conducted each year and any changes are compared over time.

Outside of the features highlighted on the Grameen website, one potentially beneficial impact of the PPI approach is that it could, if used appropriately and in a widespread fashion, standardize the process for how movement out of poverty is measured and create a large sample population for comparison. This standardization would enable interested parties to compare results over time and across groups, regions, organizations etc.

So what’s in store for microfinance in the next generation using the PPI approach?

Grameen Foundation aims to help MFIs across the world stay true to their mission to alleviate poverty. Groups using the PPI platform can define their measures for success in a systematic way, respond quickly when said measures are not showing documented results and provide feedback to their investors. While these organizations’ aims generally do not differ much from the objectives of any evaluation or impact assessment platform, Grameen Foundation’s certification program – in conjunction with its PPI assessment – has the potential to raise the bar of evaluation for some groups that are not currently conducting yearly assessments and potentially standardize the process.

Some final thoughts and questions for moving forward…

Regardless of the impact, Grameen Foundation’s support for a certification process in measuring movement out of poverty provides one coordinated effort for measuring impact among a growing number of suggested approaches (GIIN, GIRRS, IRIS etc.). While the tool is easy to use, transferrable and certified, there are some questions left unanswered about this approach. For instance, in an effort to better serve those at the BoP, how can we be sure that we are portraying a realistic picture, both successes and failures, associated with a particular poverty alleviation method?

One way to do this is to engage multiple models of assessment, viewing the movement out of poverty as a multifaceted change therefore needing a variety of quickly acquired outputs as well as robust outcomes. A helpful example to convey this point comes from the Grameen Foundation website. The PPI method “aims to measure changes in poverty through time. Thus, some powerful indicators (such as education of the female head/spouse) that are unlikely to change as poverty changes are omitted in favor of slightly less-powerful indicators (such as the number of radios) that are more likely to change.” I would argue this dichotomy is unnecessary, potentially harmful and something that appears to have staying power as we’ve been discussing for some time (See this article by Heather Esper).

If we focus primarily on measures that can be counted, easily observed and quantified in a shorter period of time as our standard method for assessment, we will potentially skew our timeframe for change and also simplify perceptions of relative successes and failures. As the old adage goes, usually the things worth doing in life are also often the most seemingly difficult to do. In the case of assessment this might mean spending more time on detail, measuring a greater number of diverse impacts and, overall, investing more time in the process. The results of in-depth assessments of this nature are potentially the greatest (and most accurate) indication of how individuals are being served by a program.

In this vein of thought, I propose that a better conversation to be having is how can we integrate both standardized methods for evaluating short-term changes related to poverty alleviation as well as powerful standardized long-term outcomes. And in doing so, how can we change our measurement model for social change to track and continually assess both short and long-term benchmarks? Additionally, what type of enabling environment needs to be in place to support multifaceted approaches to measure movement out of poverty?

Procter & Gamble and Healthpoint Services Announce Learning Partnership

2010-11-13T02:06:00.000-08:00

An innovative partnership has just been announced at the mHealth Summit in Washington DC. Procter and Gamble and Healthpoint Services will join forces under a learning partnership aimed at advancing an innovative model that delivers clean drinking water and quality healthcare services to rural communities in India, with potential to scale around the world.

Healthpoint Services is led by Ashoka Senior Entrepreneur Al Hammond. It provides rural communities with access to four basic services: clean drinking water, access to qualified doctors via telemedicine supported by two-way video and electronic medical records; advanced on-site diagnostic capability (over 80 tests), enabling evidence-based healthcare; and high-quality medicines via an on-site licensed pharmacy.

In Hammond's view, the fact that a company like P&G partners with an early stage venture like Healthpoint Services to share its insights and learn about new models and markets is "leading-edge thinking". In effect, P&G's marketing expertise and its ability to reach markets around the globe will be a perfect match for Healthpoint's growing knowledge of the challenges in serving the rural poor.

Procter & Gamble's Future Works division will lead the partnership with Healthpoint Services. According to Nathan Estruth, VP-Future Works, "P&G's innovative learning partnership with Healthpoint Services is a great example of our Company commitment to touch and improve the lives of more consumers, in more parts of the world, more completely." Besides learning about Healthpoint's approach to serving the rural poor, Procter and Gamble will "help Healthpoint Services learn how to delight consumers while creating a robust business model that is both scalable and sustainable, leveraging our global reach and strong history in innovation", said Estruth.

Unlike previous interventions of consumer goods companies in BoP markets -consisting, mainly, of innovations in packaging and pricing- this new partnership could result in a radical business model innovation. In effect, the Healthpoint model entails the provision of services to the rural poor, which falls outside the usual product realm of companies like Procter and Gamble.

We'll continue to follow and report on the outcomes of this potentially transformative collaboration.

Passing the Entrepreneurship Test

2010-11-13T02:03:00.000-08:00

Kenya boasts one of Africa's healthiest economies. Yet FSD Kenya estimates only 20% of the country's businesses have received credit from a formal source.

These entrepreneurial ventures, which encompass up to 80% of the total employment opportunities in Kenya and similar developing countries, comprise what is commonly known as the "missing middle." They face intractable structural barriers to finance due to the inability of existing financing models (venture capital, banks and MFIs) to properly assess risk, and therefore reach this critical segment.

It's in this economic and geographic context where, for the past year, I have been deeply involved with the Entrepreneurial Finance Lab (EFL). Since 2007, and initially through theHarvard Kennedy School's Center for International Development (CID), EFL has attempted to solve this crucial finance gap. EFL's co-founders, Drs. Bailey Klinger and Asim Khwaja, found that the lack of funding to this indispensable sector in developing economies was a result of an informational asymmetry, not a lack of high returns to capital in this segment. Put another way, the enormous monetary and social opportunities of lending to these enterprises required better information about risk and potential, while traditional ameliorating factors such as collateral, formal documentation, and rich credit histories simply don't exist in these markets.

With initial support from Google.org and SNV, we tested thousands of banked entrepreneurs, ranging from rural-Andean micro borrowers to urban South African venture capital investees. (You can find a list of our partners here.) From this rich and diverse sample, EFL was able to classify dimensions, from academic research on entrepreneurship and the pre-employment screening industry, which predict entrepreneurial success or failure. Specifically, EFL created a test that could identify entrepreneurial traits across loan sizes, cultures and industries, which enabled us to forecast risk to a very high degree of accuracy - on par with corporate credit models, but without typical informational requirements, (e.g. ameliorating factors mentioned above). The test's power to identify and separate risk is such that, had these institutions utilized the EFL test following their evaluation process, each could reduce defaults by 25% to 40%. Thus, the EFL tool benefits financial institutions along three dimensions: reducing risk, lowering costs and, perhaps most importantly, expanding markets.

Now and Beyond

Armed with a 30 to 45-minute, automated assessment, borrower data spanning seven countries and eight languages, and the interest of flagship financial institutions across Latin America and Africa, EFL spun out of the university to scale its solution in 2010. Initially focused on the SME segment, we were soon contracted by one of Africa's largest banks to fuel its aggressive and innovative expansion plans across the continent. In the upcoming months, this partnership, combined with several other early implementations, will provide more than 30,000 entrepreneurs with access to business credit products for the first time.

The magnitude of the data from a handful or partners will help increase the accuracy of the global EFL model, spur R&D to widen the breadth of its usage, and most importantly, demonstrate the financial viability of lending into this segment. Additionally, the Entrepreneurial Finance Lab Research Initiative at the Harvard Kennedy School CID continues to drive a strong research agenda into evaluating further tools on access to finance and economic growth globally.

EFL was founded to make a large-scale impact through an innovative approach to solving inefficient business environments in developing countries. As such, we're committed to achieving scale through its for-profit customers. However, we have also pursued partnerships with innovative, and often smaller-scale non-profit organizations across three continents to help enable good people do good work.

We look forward to providing frequent updates on our expansion, and will be looking to the NextBillion readership for feedback and support.

Civilizing the 'Wild West' of Microfinance

2010-11-13T01:58:00.001-08:00

As the cat continues to emerge from the bag in the Andhra Pradesh microcredit implosion, if there's anything that is clear it has to be this: microlenders can no longer bury their heads in the sand about engaging broadly in governance.

It's an open secret that microlending collection practices can exploit local customs and traditions to a jarring degree; check out anthropologist Lamia Karim's scathing indictment of microloan collection practices in Bangladesh. Recently headlines in Western media started to shed light on this gruesome underlying story. In what some see as a calculated political move considering the August IPO of SKS Microfinance, India's largest microlender, as a response to reports of intimidation and ruthless debt collection tactics, the Andhra Pradesh provincial government put forth an ordinance essentially urging debtors to stop repaying their loans.

Down went SKS' share price. Up went speculation about the future of microfinance.

Passionate yet very reasonable defenders of microfinance, like the Center for Financial Inclusion's Beth Rhyne, rose up to make the case that microfinance remains a pillar of progress for the world's poor. If that is true, then microlenders now have great incentive to reach out private sector organizations that exist to represent businesses, including microlenders, as a community in governance: independent, membership-driven chambers of commerce or business associations.

There are three specific areas in particular where independent private sector organizations could facilitate open and productive policy dialogue between MFIs and those tasked with regulating them: adopting industry-recognized standards for MFI regulation and licensing; liquidation procedures and deposit insurance; and the rights to receive and mobilize microsavings.

Adopt industry-recognized standards for MFI licensing

Here's an area with the most direct fallout from the continuing Andhra Pradesh saga. Rather than the risk of future blanket ordinances to cease all repayments and collections until further notice, there could be a system in place where local officials monitor complaints and provide a safe outlet to gather evidence of collection malpractice, with powers to revoke licenses and cease operations for individual agents found in violation of collection standards. CFI's SMART Campaign proposes a leading industry-recognized set of voluntary client-protection principles that could also serve as a basis for licensing individual MFI agents. Licensing standards, properly enforced, would vitally restore damaged reputations and investor confidence. Some form of new lending regulation is pretty much guaranteed; microlenders must join with other businesses to make sure that it doesn't impede honest, meaningful business activity.

Liquidation procedures and deposit insurance

Clients of MFI agents in violation of licensing standards must not be left off the hook. Just as the U.S. has a government agency that liquidates banks that have made too many bad loans and puts accounts in good standing into the hands of a competing healthy bank, local officials in Andhra Pradesh and elsewhere could perform the same task for MFI agents and their clients. Liquidation for microloans is a tremendously complex task, since microloan portfolios are sandcastles, but MFI liquidation is a question worth exploring. If it is possible, and certainly a government agency would have to be involved somehow as either a regulator or performing the liquidation itself, it would also be vital for microdeposit insurance. (Hat tip to David Roodman's blog for some key discussions on liquidation and microdeposit insurance).

The right to receive and mobilize deposits

When the dust settles from the ongoing Andhra Pradesh saga, microfinance sectors in India and elsewhere must revisit this issue as full-fledged members of the business community. By now the ripples from Portfolios of the Poor have made their way across most of the microfinance space, and recently Financial Promise for the Poor has added to the shifting tide in microfinance from lending to savings as a priority. Yet it is very well known that MFIs in India remain banned from offering savings accounts of their own. One organization, EKO India Financial Services, managed to negotiate a business correspondent relationship with the State Bank of India to mediate funds for SBI microsavings accounts. In India and elsewhere, MFIs remain woefully deprived of legally-sanctioned options for offering savings accounts and mobilizing savings locally as capital for microloans.

Engaging in governance is about reigning in what you might call the "wild west" period of microfinance, and bringing forth a truly fair and open competition, one based upon the rule of law rather than the rule of whatever works, to provide the highest quality services at an affordable price to the most people. Every emerging industry that has survived to transform the world has had to emerge from its wild west phase, a sort of testing period where ideas are thrown to the wall to see what sticks and what ends up bouncing right back in its face. After a few decades, perhaps microfinance has reached that moment.

But why engage in governance though representative private sector organizations? Why not lobby government as individual firms or as an industry? Well, for one thing, the process builds relationships across sectors and between business and government that reinforce rather than undermine accountability-which would limit questionable lending practices and knee-jerk reactions like the Andhra Pradesh Ordinance that harm microlenders, their customers and their investors.

Even more important for the future of microfinance, broad-based representative organizations can provide more credible support for those reforms that are good for business in general, not just for microlenders. After the events in Andhra Pradesh, that credibility will be vital to restoring some of the damage done to microfinance's reputation among the poor and among investors.

Wrapping Up Net Impact on ... Impact

2010-11-13T01:55:00.000-08:00

Wrapping Up Net Impact on ... Impact

Despite the number of interesting sessions offered at Net Impact this year, I chose to stay focused on a specific topic and attended mainly sessions related to impact. This post is a combination of a few of those sessions.

The first impact session I attended, The Role of Impact Investing in Social and Environmental Change, discussed the significance of investing for impact and new trends in the field. John Goldstein ofImprint Capital Advisors, the moderator, started the session by acknowledging that impact investing applies to a wide range of asset classes and missionaries. Each panelist then shared their interest in current innovations occurring as a result of impact investing. Bill Marvel from Baldwin Brothers, which started as a hedge fund, is interested in new enterprise and investment strategies, while Art Stevens from the Calvert Foundation is focused on ways to use impact investing to create more effective vehicles to enable participation and channel capital, whereas Rob Whittier of Deloitte is involved in building industry infrastructure though standards and metrics. Whittier, who works with IRIS, highlighted that one of the goals of IRIS is to unlock trillions of dollars to invest in such ventures. I was also pleased to hear Rob cite a malaria example to describe the type of metrics IRIS uses that I often use to describe the differences between outputs and outcomes (i.e. an output would be the number of malaria nets distributed, whereas an outcome would be the change in malaria incidence due to the malaria nets). He also clarified that IRIS is focusing on standardizing output metrics first. To which Stevens later added that "outputs are okay ... We need outcomes, (to answer the question) are we changing people's lives. (We) need to ramp up measurement." He continued by saying we need to collect enough data to know what our impact is, but not be buried in measurement; a line that the impact investing field is carefully assessing now.

The closing question came from a student attendee "Will we be able to fix or save the world?" to which the panelists responded confidentially that yes, they think so since the brightest students are choosing to dedicate their careers to contributing to answer. And Steven's response to the student's question was right on, we will know we are aiding in addressing this problem when we see we are turning money back into relationships.

Despite the optimistic response of the panelists to the last question, I left the session frustrated. Why are people saying we need to start with measuring outputs instead of outcomes? And why are we starting with investors - why are we working to unlock large amounts of money to invest in ventures if we don't know if their business model is helping or hurting those they are seeking to serve? If standards only aim to include output metrics now, information elicited by these kind of assessments will only indicate how well the business model operates based on if they performed as they planned to or not. This assessment does not address the larger question of how and potentially, why the business model is helping or hurting individuals. With limited resources, we should instead focus our energies on figuring out how to make evaluation work better for ventures, so they can assess and enhance their business models in order to better meet the needs of those they seek to serve. Then, we can unlock the additional capital to invest in models that are proven to help alleviate poverty.

Another panel session on impact, Impact Investing Organizations: Achieving Triple Bottom Line Impact examined how the panelists designed their investment vehicles, chose indicators, and managed investments that aim to balance their triple bottom line returns. The session also addressed the broader challenges and trade-offs that impact investing organizations face while seeking to deliver non-financial returns.

The panel, moderated by Gautam Kaul, a professor of finance at Ross School of Business, included panelists: Neel Inamdar from Verde Ventures joining virtually, Ben Powell from Agora Partnerships and Doug Young from MicroVest. The first question polled the panelists how their commitment to measuring triple bottom line affects the way they operate. Inamdar kicked off responses by saying Verde Ventures does not even consider a business opportunity unless it has a conservation wing. Powell followed by saying that Agora Partnerships is trying to create a community of impact entrepreneurs. And Young added to the conversation by sharing the shift in thinking that their organization had to go through when they began to use investments; that is, people ask a lot more questions when they are giving money as an investment instead of as a donation. Powell chimed in saying that they had to become more transparent, in fact, they now examine all deals they did and decided not to do, and put it on the web as a white paper. Powell also highlighted three problems facing impact investing: 1) how do you create a financial structure that doesn't need $1 million or $100 but somewhere in between 2) how do you develop a pipeline (i.e. where are the businesses originating?) and 3) how do you ensure entrepreneurs value the vision you have? Kaul wrapped up the discussion for the first question, with some food for a thought: "people with a good heart don't think consistently..." and made the important point that when working to achieve a triple bottom line, organizations need to think about other inputs besides money, such as networks and soft skills.

When asked if environmental impact is easier to measure as compared to social impact, Inamdar replied that the idea of environmental footprints has helped, but these metrics are still deal dependent, and that social metrics aren't harder to measure in general, but we do need to come to agreement on a set of social metrics. Kaul made the point that making money is easy but creating value for society is difficult and should make you tingle. He also suggested that we are on a longer path, as it took a long time for the stock market standards to be set. Inamdar added that it is not easy to include triple bottom line measures in a term sheet due to the lack of standardization. Which made me think yes, we are making headway in standardizing metrics, but we still have a lot left to do since we are only focusing on outputs and need to have more of a focus on the entrepreneur, instead of investors. Powell seemingly read my mind, and asked the rhetorical question: will entrepreneurs really use IRIS and GIIRS, or other similar models to better manage their businesses? Similar to designing a business model for the base of the pyramid, one has to shift their thinking from what type of product they want to sell to how they can give communities what they want, this shift in thinking still has to happen with impact assessment. How do we get impact assessments to work for entrepreneurs? How do we get entrepreneurs buy in to conduct rigorous evaluations? I think the answer is in the framing; framing impact assessment as an investment to assess and enhance one's business model.

These sessions on impact left me wondering what others think about how, as a field, we are approaching the subject of metrics. Do you think we are on the right track, or do we need to reframe our positioning to increase our attention to entrepreneurs versus investors? Do you think we are doing enough, or do we need to push ourselves harder to make the leaps to also standardize outcome metrics?

An Update on the Idjwi Project

2010-11-13T01:40:00.000-08:00

Dr. Sebisaho holds two infant residents on Island of Idjwi. Amani Global Works

Since this summer, when I first wrote about Dr. Jacques Sebisaho and his team as they prepared to travel to Idjwi with the mission of filling the Island's healthcare void, the facts on the island remain unchanged. There are still upwards of 200,000 vulnerable people living on the island, only three of whom are doctors; there are still low instances of electricity and potable water, and high child mortality rates. But, what is different, is the island's outlook.

In a recent interview, Dr. Sebisaho articulated three goals that Amani Global Workshoped to accomplish during the team's three-week trip to Idjwi. First and foremost, Dr. Sebisaho wanted to get the Idjwi community behind the organization's plan to erect a main hospital and satellite health clinics. After all, if the community rejects the unfamiliar availability of healthcare, after laying the future hospital foundation and stocking its shelves with supplies, its halls would remain empty, vaccinations would remain unused, and all efforts would be rendered futile. As Dr. Sebisaho puts it, the organization's success is contingent on confirming that Amani is "not going against the flow." Secondly, Amani hoped to mollify any potential racial or political tensions that could result in an isolated island's sudden exposure to technology, never before seen races and unfamiliar practices. A third and crucial goal was to return to New York with a concrete plan the citizens of Idjwi will embrace and that Amani can support.

So how did the Amani team's accomplishments measure up to their goals?

Of course, there were many impediments along the way. The difficulty associated with a lack of communication technology on the Island is only topped by the frustration of having no roads and efficient travel means (not to mention limited or no electricity). Until a few weeks ago, when Dr. Sebisaho's team charted a map of the Island, one had never existed. When faced with an illness, someone from Idjwi has to wait one week to board a boat to a neighboring village to receive medical attention- a scenario that certainly does not favorably lend itself to emergencies. The team's plan to accrue feedback from surveys and town hall meetings were inherently complicated by the lack of communication, but their glowing results hardly reflected the difficulties.

(Above: Hand-raisers meet where the hospital will be constructed).

The Amani team composed of Harvard students traveled throughout the island from door to door, and collected surveys from more than 3,000 people conveying their wants, needs and preferences. Furthermore, the students were able to employ women on the island to aid in conducting the surveys and collecting the coveted data. Even some children, previously tangled in the army as child soldiers, participated in the discussions and voiced their dreams for Idjwi. Close to 1,000 inhabitants of Idjwi attended the two town hall meetings that took place in both the North and South regions of the island over the course of the team's three-week visit, and engaged in open discussions about what the people of the Island need most. (Dr. Sebisaho expected a turnout of 20 people, based on previous apathy and discouragement that he detected among the people.) In one group interview, five village children conveyed to Dr. Sebisaho that they "had lost faith in people;" they felt like no authority would provide for them or fill their basic needs, and "for the first time they were finally seeing someone do something positive for the island without a political agenda." And after reading through the thousands of surveys collected, it is clear to Dr. Sebisaho that this sentiment is a pandemic throughout the island, perhaps as widespread as malnourishment and malaria.

After garnering the support of the community, the Amani team tackled its other goals. During one of the door-to-door meetings in Northern Idjwi, Dr. Sebisaho's team found five young high school graduates (a rare finding on the island, since many move away to seek more education or jobs) who were eager to lend a hand. Without the help of any machines, these students traced a road linking the community of Northern Idjwi to the future hospital. People now use the road to travel to places where only motorcycles dared to roam previously; thanks to these five students, their elementary tools, and Amani Globa Works' guidance, the community realized that Dr. Sebisaho is not only there to merely preach and make promises. Needless to say, his current promises to raise funds and begin building, have raised high expectations.

(Above: Community volunteers making bricks that will be used to build the medical center, as a sign of their willingness to participate).

Although the medical statistics of Idjwi have not yet changed, one man and a handful of students have won over the hearts of the people and have started to make their mark. You can see this in their newly traced roads, freshly charted maps, and pages upon pages of data that will continue to guide the Amani team closer to solutions for a community with many basic problems.

If they can accomplish all of that in just three weeks, I look forward to seeing what will unfold in the coming months.

Defining (Social) Entrepreneurs Up

2010-11-13T01:35:00.000-08:00

Type in the word "entrepreneur" in a Google search engine and you will get over 28 million results. Check out September's Harvard Business Review and you will find an entire spotlight section dedicated to the subject. One way or another, it's almost impossible to escape the term these days.

Yet, how do we define this ever-evolving field that promises both efficiency and effectiveness while generating impact? In a keynote address delivered to the Novartis Power of Partnering National Meeting this week - Valeria Budinich, Ashoka's Vice President of the Full Economic Citizenship Initiative - presented the case for not only why (social) entrepreneurship is important for non-profits in the business of making a difference, but also why collaboration is key.

How do individuals, organizations and companies change systems, scale social impact and generate cash sustainably? She drew on the different models, concrete examples and underscored the transformational power of Hybrid Value Chains. Check out the full keynote presentation below and don't pass up the complimentary New Alliance for Global Change article here.