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Social entrepreneurship & finance

Tag ‘ social entrepreneurship ’

SVC/SE (Miami), March 17-19, 2010

November 3, 2009 | Comments Off | FairExchange

Fair Street’s main objective is to show how finance can support the development of Social Entrepreneurs. In our various reports, we emphasized the crucial role of finance in allowing entrepreneurs to successfully carry out their innovative ideas.

In the recent years, several conferences have taken place to allow the actors of the impact investing sector to gather, network and exchange ideas with the objective to extend their impact.

To that extent, we want to share with you a conference on Social Venture Capital and Social Enterprise focusing on Latin America, the Caribbean, and the state of Florida that is taking place in March-2010 in Miami. Fair Street is going to attend this conference and we strongly encourage you to do the same if you have an interest in the field or if you want to have a feel on the major shifts happening in this part of the world.

John Rosser, SVC/SE, Miami-2010 Founder and conference Organizer tells us more: “SVC/SE, Miami-2010 will be a major regional meeting place for Social Venture Capital and Social Enterprise- connecting capital to people, and ideas to funding. Miami is rapidly becoming a hub for Social Venture Capital/Social Enterprise for Latin America, the Caribbean and the state of Florida. This translates into sustainable regional economic and social development through social entrepreneurship”.

Spread the word and visit the web site: www.connectionmiami.com

Jacqueline Novogratz on Social Return

August 21, 2009 | Comments Off | Guests

If measuring financial return on an investment has becoming a common practice, measuring social return still faces several issues and there is no global consensus yet on the way it should be assessed. To invest with impact, it is however a key information; on the first hand for the investor anxious about the impact generated by its capital and on second hand for the investment fund to evaluate their objectives, improve their practices and communicate the outcomes. Social return, being at the heart of the debate on impact investing, Fair Street has investigated how social investment funds measure the social impact of their investment.

Fair Street had the great privilege to interview Jacqueline Novogratz, founder and CEO of Acumen Fund, a major social investment fund mainly active in Asia.

Jacqueline Novogratz started her career at the Chase Manhattan Bank. After obtaining a MBA at Stanford University, she decided to go to Rwanda and founded a microfinance institution called Duterimbere. Consultant for the UNICEF and the World Bank, she then joined the Rockfeller Foundation where she created and managed key programs focusing on development. In 2001, together with main international organizations, she founded the social investment fund Acumen Fund.

In 2009, she wrote the book “The Blue Sweater” and she often shares her optimistic and inspiring vision at difference conferences such as Ted Talk or WEF.

In the following interview, Jacqueline Novogratz answers Fair Street’s questions on the role of patient capital and the challenges of measuring social return.

Fair Street: Could you shortly describe Acumen Fund? More precisely, could you tell us how it differentiates from other social investment funds?

Jacqueline Novogratz: Acumen Fund exists to help end poverty by changing how the world addresses it. We do this in two ways. We invest patient capital to identify, strengthen and scale business models that effectively serve the poor. And we champion and spread this approach as an effective complement to traditional aid, which can create dependence, or pure market approaches, which can bypass the actual needs of the poor.

Acumen Fund focuses on a market-oriented approach to addressing problems related to poverty in the developing world, and in its use of debt and equity, as well as an investment model that relies on intensive due diligence and the use of metrics to ensure that each investment yields measurable social returns. We actively listen to understand who the poor are and let markets indicate what they need, in an effort to help people make their own decisions and solve their own problems

Our long-term vision is that one day every human being will have access to the critical goods and services they need – including affordable health, water, housing, energy – so that they can make decisions and choices for themselves and pursue lives of greater purpose. This is where dignity starts – not just for the poor but for everyone on earth.

FS: Could you explain what a social return is? What are the different tools to measure it? What are the challenges in measuring it?

JN: It’s the measurement of this « social return » that is so difficult – not just for Acumen Fund but for the nonprofit sector overall. We have a clear commitment to accountability and metrics, from ourselves as an organization and from all the investment enterprises with whom we work. So we continue to work to develop systems that help us better understand the real impact of our work, and how we can better support our investees. At the level of our individual investments, we assess our investments along four criteria: Financial Sustainability, Social Impact, Scale and Cost Effectiveness. We expect quarterly metrics from each enterprise on the corresponding financial, operational and social impact metrics.

We employ an analysis called BACO (short for ”best available charitable option”), which is our tool for assessing the cost effectiveness of our investments. We designed it as a way for us to better understand and improve the effectiveness of our own work, not necessarily as a tool for the sector, although we are happy to see that others find it applicable.  We developed the framework because we found that absolute measures of social return are too hard to implement in practice, but we needed something to help us think about the marginal use of our philanthropic capital.

Over time, we would love to see a world where the “output per dollar input” of a range of activities is made transparent and comparable. The question of standardized metrics is an incredibly difficult one, given subjectivity in values. With Google’s support, we have built a web-based tool to share portfolio performance data across our four international offices. Called Pulse, this system allows us to keep metrics data and insights reliable and available. We can then analyze this aggregate pool of data to identify cross-cutting principles—and to explore and communicate breakthrough insights into how to reach base-of-the-pyramid markets. Pulse is currently being beta tested by a number of peer organizations, and along with a standard set of definitions, has the potential for allowing for greater comparison and transparency across the sector.

FS: You said in the “Ted talk” that patient capital plus management support are more efficient than market and charity alone. Why is this combination more efficient in generating social return in the long run?

JN: Poor people seek dignity, not dependence. Traditional charity often meets immediate needs but too often fails to enable people to solve their own problems over the long term. Market-based approaches have the potential to grow when charitable dollars run out, and they must be a part of the solution to the big problem of poverty.

But the marketplace alone isn’t the answer either. Very low-income people are too often invisible to businesses and society. Building new models that provide these critical services at affordable price – in the face of high costs, poor distribution systems, dispersed customers, limited financing options and, at times, corruption – requires imaginative business solutions and partnerships supported by investors willing to take on a risk/return profile that is unacceptable to traditional financiers.

Our approach is to invest “patient capital” – typically below-market investments that are accompanied by management assistance in enterprises with the potential to reach hundreds of thousands of individuals. We regard low-income as individuals as customers (even if they have no ability to pay) rather than as passive recipients of charity. We start with the market because we believe it the best listening device we have. From our investments, we gain insights not only about the poor as consumers but about where the market fails entirely. In these cases, we believe we can bring deeper insights about more efficient ways of delivering needed services to the very poor.

FS: In classical financial models, people usually build their portfolio looking for the highest expected return given a certain level of risk. Do you think social return will become a key investment driver in the future? Does paying attention to social return necessarily imply renouncing to some financial return?

JN: I don’t think the financial model that’s changing — what’s shifting is the way many investors consider the definition of return. I think social return is already a driver for many people, who are seeking the highest expected return that combines both the financial and social. For Acumen Fund, while we operate as a venture capital fund, we seek to make a social impact with investments while achieving financial sustainability. With our earlier investments, we have generally sought the return OF our capital as opposed to a return ON our capital – however, our more recent investments have the potential for far greater returns.

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Ciudad Saludable: The video report!

July 25, 2009 | Comments Off | Enterprises, Videos

Ciudad Saludable (healty City) is a NGO that develops micro-enterprises focusing on waste management in Lima. Founded by Albina Ruiz, Ciudad Saludable encourages and helps “recicladores” to organize themselves and create their micro-organisation. It has created 150 new jobs and Albina Ruiz pays a special attention to the self-estime and the dignity of the workers. Beside the trainings they give to the micro-entrepreneurs, Ciudad Saludable offers a technical and legal support and they developed an innovative microfinance system to finance the creation of micro-enterprises. After a successful experience in Peru, Albina is currently thinking how she could replicate her model in other countries such as India.

For more info, read Ciudad Saludable’s profile


Fair Street - Ciudad Saludable from Angalio Productions on Vimeo.

Fair Street and microfinance

July 14, 2009 | Comments Off | FairExchange

Fair Street’s objective being to put forward an ethical and responsible finance, our interest in microfinance is obvious as it is one of the financial activities that has contributed the most to reduce poverty during the last three decades. Reduced to its simplest, microfinance is “the access to capital for the most vulnerable communities”. Today, close to 10,000 microcredit institutions serve 130m people with liabilities of €30 billions. With a potential market constituted by the 4 billions individuals that live with less than €3 per day, the growth potential is important.

By attributing microloans to entrepreneurs who cannot have access to the classic financial institutions, microfinance enables the realisation of microprojects which favours the economic activity and wealth creation in the developing countries. Based on simple, efficient and responsible principles, the microcredit activity is considered as one of the main driver of these countries’ economy.

Depending on the structure, the working method and the geographical area the size of the microcredits fluctuate between €100 and €2,000. Today, the MFIs activity does not only consists in providing credit but includes different financial services such as savings, micro-insurance and even credit cards; this is why the term microcredit has evolved towards to microfinance.

As financial actors contributing to the economic and social development of the most destitute populations, microfinance institutions are good examples of the message Fair Street wants to promote. In the frame of Fair Street, the case of microfinance will be studied under two perspectives:

- Firstly as a field of social entrepreneurship. The most famous social entrepreneur is without a doubt the Nobel Price winner Muhammad Yunus, founder of the Grameen Bank, who by creating the first microcredit institution has been able to balance economic and social interests. The success of his model has encouraged other people to replicate it throughout the world. Fair Street has visited a Bolivian microfinance institution that will be the subject of the next video report.

- Secondly, microfinance and social entrepreneurship are two activities that are increasingly converging. Several social entrepreneurs collaborate with MFIs to extend the social impact of their innovations. This collaboration can take different forms. Some social entrepreneurs work with microfinance institutions to take advantage of their distribution network. It is for example the case of Sobre La Roca which sells a part of his solar cookers through a microfinance institution. This institution provides loans to the rural populations in Bolivia to help them financing the purchase of the solar cooker. Microfinance can also be at the origin of a micro-franchise system by financing several micro enterprises (franchisees) whose activities are centralised by a “mother” organisation. Other forms of collaboration exist and this is why many actors see a strong potential in this association.

With the apparition of new approaches and the diversification of activities, microfinance, as any activity growing sharply, is facing different challenges. The most important one being to avoid excessive debt within the populations it addresses. If in the case of Sobre La Roca the grant of consumption credits has a positive effect, an excessive debt erases all the advantages of the social and economic progress initiated by microfinance. It is therefore essential that microfinance institutions stick to their main mission that is providing loans to income generating activities.

In this framework, MFIs in collaboration with governments and regulatory bodies work towards the elaboration of good and bad governance practices. For example, several countries have already put in place national credit offices with mission to monitor the debt level of the MFIs clients.

These different questions and the initiatives they trigger go hand in hand with the evolution of microfinance and are part of a healthy process of maturation. Microfinance is an extraordinary financial tool that supports the economic development of many people in developing countries. By offering millions of entrepreneurs the opportunity to develop a professional activity, it constitutes a strong lever for their empowerment and their integration in the economic life. Consequently, the reflexions aimed to determine better practices are vital.

Sources:

www.lamicrofinance.org

www.blueorchard.com

Coronilla: The video report!

June 28, 2009 | Comments Off | Enterprises, Videos

Coronilla is a company based in Cochabamba, Bolivia, that produces gluten-free pastas and snacks. Coronilla’s objective is to have a positive impact on all the actors of its value chain. Therefore it buys its raw materials at a fair price to local suppliers, its workforce is composed of 75% of women with 10% with  of the employees that are disabled and it offers optimal working conditions. Discover the interview of Martha Wille, the entrepreneur that insufflated her social fibre to Coronilla.

For more information, read Coronilla’s profile

Fair Street - Coronilla from Angalio Productions on Vimeo.

After the fascinating discovery of the solar cookers, Fair Street made a second reporting in Cochabamba, Bolivia. We had indeed the chance to meet Martha Wille who manages Coronilla, a family business created more than 40 years ago. Through her actions, Martha made of Coronilla the perfect example of a company that beneficiates to all the actors of its value chain.

Problematic and context:

Coronilla addresses problematic that are directly linked to the political and social situation of Bolivia. Even if a progressive opening to market economy has improved the economic situation of the country, Bolivia remains today the poorest country in South America with strong inequalities between urban areas where 60% of the population is poor and rural areas where this figure rises to 80%.

The bad living conditions of the Amerindians (60% of the total population) is one of the main issues in Bolivia. Evo Morales’ accession to power triggered a lot of hope among this segment of the Bolivian population. Nevertheless, many still live in precarious conditions. As homeland for the majority of the Indian population, the Bolivian Altiplano, region of high plateau at heights of more than 3000 meters is particularly poor. There, people essentially live from agriculture, first sector of activity of the country, and earn unstable and little wages.

If it is the case of many poor countries, the situation of women in Bolivia is particularly worrying. In the 90s’, this problem was even considered as one of the plagues of the country. A study made in 1994 showed that close to 70% of the women endured domestic violence. Today, Bolivian women still suffer important discrimination compared to men. With their main task being house caring, they have a limited economic power and are therefore strongly depending on their husband. This isolation, combined to wife-beating prevents women from taking part to the development as they are too busy defending themselves.

At the root of the women marginalisation stands their low level of instruction that reduces their emancipation possibilities.

Fortunately, in the last 10 years, the situation of women has become a central preoccupation in Bolivia and many initiatives and laws that aim at improving their situation have appeared but a lot still needs to be made.

The company:

Founded in 1972 by Guillermo Wille, Coronilla has been a pasta producing company from its beginning. In the mid-90s’, the export market strongly contracted, putting the enterprise close to bankruptcy. Martha Wille, daughter of Guillermo Wille redynamised the company by diversifying the product range. If Guillermo Wille already paid attention to the well being of its employees, it is with Wartha that the second life of Coronilla as a social enterprise really started. Today, the company produces pastas and snacks mixing quinoa and a traditional andine cereal that makes them gluten-free.

Coronilla wants to fight poverty by having a positive impact throughout its value chain. As CSR (Corporate Social Responsability) is a relatively unknown concept in South America (even less in Bolivia), Coronilla wants to be a pioneer. In its buyings, the enterprise purchases its ingredients (quinoa, rice…) directly to destitute local producers, negotiates in their own language (Quechua or Aymara) and offers them price stability.

The employees also have a very important place in the company’s strategy. 75% of the employees are women and 10% are disabled. The working conditions are optimal in terms of hygiene and security and the enterprise provides its employees with the possibility to study or to follow complementary training. Finally, Coronilla offers support to the working families so they can put their children at school.

As there is very little demand for organic food in Bolivia, Coronilla only focuses on exportation. Today, the company exports to 11 countries in North America, Europe and Oceania.

The entrepreneur:

Daughter of Guillermo Wille, Coronilla’s founder, Martha Wille was influenced by the social convictions of his father and incorporated them to the family business. As manager of the family business and being extremely attentive to the well-being of its employees, Martha wants all the employees to feel part of the Coronilla family.

After being elected social entrepreneur of the year 2005 by the Schwab foundation, Martha was invited to participate to the World Economic Forum in Davos where she met many other social entrepreneurs. As a follow-up to the exchange of ideas taking place there, Martha’s next challenge is to launch a foundation « the Guillermo Wille Foundation » that will work on the to replication of Coronilla’s model by giving advice to Bolivian companies and encouraging them to adopt CSR policies.

Social impact:

Buying its ingredients to local producers following Fair Trade principles, Coronilla provides a stable source of revenues to 1500 families allowing them to maintain a certain life standard.

As Martha told us during the interview, by providing a respectful and blossoming work environment, the company wants to have a positive impact on the lives of its 65 employees. After the production manager noticed that an employee had developed a skill at resolving the problems that occurred on the production chain, the company encouraged her to attend a two year engineering program. Today, this employee enjoys a much higher wage that allowed her to provide her children with higher quality education.

The economic autonomy aquired by women working at Coronilla facilitates their emancipation.

Financial impact:

Since 1997, two organisations have contributed to Coronilla’s development

The first, SEAF (Small Enterprise Assistance Fund), has invested $400 000 (mix of capital and debt) through its fund « fondo Capital Activo de Bolivia », to finance its needs in working capital. More than the supply of capital, SEAF support helped Coronilla in improving its accounting practices and in transforming into a stock corporation. SEAF essentially professionalised the company. Coronilla bought back SEAF’s shares in 2004.

After SEAF’s help, Coronilla still only used 20% of its production capacity in 2004 and the enterprise needed capital to keep growing. Back then, Coronilla obtained a loan of €350 000 from the Dutch organisation Cordaid. This loan allowed Coronilla to double its exports within the same year. Today, Coronilla’s exports are close to $1 000 000 using 50% of the productive capacity. If the company has met a high growth in the last 5 years, it still enjoys important growth potential that should enable it to spread its fixed costs better and increase its margins.

By continuing to create value for all its stakeholders (producers, employees, shareholders and clients) Martha Wille is convinced that Coronilla is meant to be a major company in Bolivia.

Fair Street highlights the role of finance in the development of social enterprises.

If there has been social entrepreneurs for a long time, their development and their influence has strongly increased in the last three decades. Among other things, this happened thanks to the work of several organisations which, convinced of the potential of these extraordinary individuals, support them to increase their impact and spread their innovations.

Ashoka was the first and is today the largest organisation supporting social entrepreneurs.

Ashoka is a non-profit organisation that aims at structuring and developing social entrepreneurship at the global level. It was founded in 1980 in India by Bill Drayton who was persuaded that the economy needs the dynamism and the innovations of social entrepreneurs in its long term development.

Bill Drayton famously commented that “our job is not to give people fish, it’s not to teach them how to fish, it’s to build new and better fishing industries.”

Guillerma Lazzaro, Ashoka’s director for the Cono Sur region (Argentina, Chile and Uruguay) received Fair Street in Buenos Aires to explain us in details the vision of Ashoka and the main challenges that social entrepreneurs will have to face in the coming years.


Fair Street - Ashoka Cono Sur from Angalio Productions on Vimeo.

Sobre la Roca: The video report!

June 12, 2009 | Comments Off | Enterprises, Videos

Headquartered in Cochabamba, Bolivia, Sobre La Roca was founded 12 years ago by Ruth Saavedra to produce and sell solar cookers to farmers living in rural areas. Using solar energy to cook favours the protection of the environment by reducing C02 emissions and deforestation. The ease of use of the solar cooker also allows women to save a lot of time that they can then allocate to productive activities.

For more information, read Sobre la Roca’s profil

Fair Street - Sobre la Roca from Angalio Productions on Vimeo.

Following the interview of Michael Chu, here is a more detailed description of IGNIA Fund, the social venture fund that he co-founded and manages.

Founded in June 2007 and headquartered in Monterrey, Mexico, IGNIA Fund is a social venture capital fund that supports social enterprises with high growth potential. IGNIA builds bridges between financial markets and the « Base of the Pyramid » by providing capital to enterprises of this sector. Traditional investors are usually reluctant to invest in this sector as the incubation period is longer than for regular companies. As a consequence, social enterprises face major underserved financing needs. IGNIA’s founders believe that the market constituting the « Base of the Pyramid », has a huge potential. In Latin America, it is composed of more than 360m people whose purchasing power is valued to $520 billion.

In May, IGNIA completed his third closing bringing its equity commitment to $40,7m. The round was led with $5m from Soros Economic Development Fund, created by philantropists investor George Soros. According to Michael Chu, IGNIA’s fund raising have not been affected by the current economic slowdown. Moreover, it made it possible for IGNIA to come closer to its objective of $50m - $75m in equity. If we also consider the credit line of $25m provided by the InterAmerican Development Bank, IGNIA will have a total of $75m - $100m that can be invested in initiatives dealing with the most urgent problems of our planet. The invested amounts will vary between $2m and $10m for a period that lasts 12 to 15 years. In IGNIA’s founders’ opinion, this is the necessary period for having a major social impact.

IGNIA does not only focus on a specific industry and is willing to have a highly diversified portfolio. On the geographical level, its ambition is to go beyond Mexico and to participate to the development of the « Base of the Pyramid » in South America as a whole.

In addition to a major social return, IGNIA also wants to offer above average return to its investors (e.g. IRR 30%). If the two founders, Michael Chu and Alvaro Rodriguez, are convinced that social enterprises represent the future of our society, they also believe that a sustainable change can only be obtained through the development of entire industries (requiring the emergence of numerous companies). As the development of industries implies superior financial return, maximizing financial value is, together with having a social impact, one of the two pillars of IGNIA’s investor proposition.

IGNIA’s first investment is an equity investment of $3m in Primedic‘s capital, a Mexican firm based in Monterrey. Primedic provides healthcare to the most destitute people through an innovative membership program. The capital provided by IGNIA will allow Primedic to extend its services to other cities of Mexico. Up to now, the performance of this investment exceeded IGNIA’s expectations.

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The development of social entrepreneurs is made possible, among other things, by the financial support of institutions willing to have a social impact through their investments. They are the kind of financial agents that will build a more ethical and responsible financial sector. If they do not stand as the main source of financing for social entrepreneurs yet, the number of them willing to combine social and financial return is growing. Given the recent, innovating and promising character of these actors, Fair Street wanted to learn more on their investment strategy and on their ability to combine social and financial return.

Fair Street had the privilege to interview Michael Chu, co-founder and managing director of IGNIA fund, one of the first social venture fund active in South America (profile to be discovered in the « financial agents » section).

Senior lecturer at the Harvard Business School, Michael Chu is an expert in social entrepreneurship and in the sector of the « Base of the Pyramid ». Graduated from this same business school, he worked for the private equity Kohlberg Kravis Roberts after having begun his career at the Boston Consulting Group. During six years, he was the CEO of Accion International, an organisation that aims at fighting poverty through microfinance. In collaboration with Alvaro Rodriguez Arregui, he founded the social venture IGNIA fund in June 2007.

Fair Street : Can you explain what is a social venture fund  (or more broadly a social investment fund)? How do they differ from classic venture funds? In your opinion, are social investments riskier than traditional investments? What are the criteria’s for a “good” social investment?

Michael Chu: In my view, in its most basic definition, a social investment fund is a fund that focuses its investments on enterprises whose activities are deemed to have a positive social impact. This is the key difference with classic venture funds, in which the primary purpose is financial returns. From there on, there can be many different types of social investment funds. The IGNIA Fund which I co-founded, for example, is dedicated to invest in commercial enterprises dedicated to low-income sectors which will generate high social impact due to their activities (e.g. healthcare, housing, education, basic services for the base of the socioeconomic pyramid and supply chains that incorporate low income producers) and also above average financial returns.

I do not think that risk is a defining characteristic that distinguishes social investments from traditional investments. There are risky and safe investments in both social and traditional sectors. To emphasize my point, with the benefit of hindsight it’s clear that owning a share of Citigroup was much riskier than a share of Compartamos Banco of Mexico, where the average size loan is still under US$ 500.

My criteria for a good social investment is an enterprise that is capable of generating high social return (e.g. providing access to primary healthcare for low income populations) together with the creation of outstanding financial return (e.g. IRRs (1) in the 30s%). IGNIA’s investment in Primedic fulfils exactly those characteristics.

FS: As a manager of a social investment fund, how are you able to find the balance between social impact and financial returns when making your decisions? Doesn’t one of these variables eventually end up taking precedence over the other?

MC: At IGNIA, finding that only one of the two considerations is met is precisely a reason why we would decline a deal. For us, it makes no sense to just generate financial returns. My partner Alvaro Rodriguez and I could have done that by just sticking to what we were doing after we graduated from business school. On the other hand, if we find something of high social potential, we believe that meaningful impact can only be obtained through massive scale, which requires not only one firm but a whole industry, for which outstanding financial returns are essential. So for us, high financial returns is not a “nice-to-have” but an integral component to our theory of change and social impact.

FS: How will the current crisis impact the access to capital for social entrepreneurs? Do you think that following this crisis, people will invest a bigger part of their money in socially responsible institutions such as Ignia fund? Might the current events represent an opportunity for social entrepreneurs to gain influence in the public debate over the fundamentals of a more sustainable economic model?

MC: The current crisis will make access to capital difficult for everybody. Having said that, the latest two rounds of investment of the three we have had in IGNIA have been subsequent to the meltdown of global capital markets. We hope to continue with more investment rounds in the near future until we complete our fundraising goal.

While I would like to think that the current crisis will end up redirecting capital markets towards alternatives like IGNIA, at the end of the day this will be determined really by the actual results delivered by IGNIA.

FS: The debate you had in Geneva with Muhammad Yunus has been widely commented on the Internet…Your view is that market-based approaches and commercials means should be applied to organisations addressing the Base of the Pyramid. Could you please tell us more about this?

MC: Winning over poverty requires four conditions: massive scale, sustainability across generations, continuous efficacy (a model that gets better every day) and continuous efficiency (a model that gets cheaper every day). NGOs, philanthropy, developmental agencies can start initiatives but cannot on their own deliver scale or permanence. On the other hand, Governments cannot deliver continuous efficacy and efficiency. Business, i.e, market-based solutions, is the only way humans have known how to deliver all four of the necessary conditions simultaneously and consistently. But this is accomplished not through one individual enterprise. Business delivers this through the creation of whole industries. And I know of only one way to create an industry: an economic activity and above average returns.

One caveat, though. If you use market mechanisms to address social issues, you must also understand that the only way to ensure through time that the benefits of the additional value created do not remain solely with investors and managers but continue to flow to those being helped is through competition — open, transparent and intense. Then prices will drop, product variety will increase and customer service will excel. This is the enduring lesson of successful commercial microfinance.

(1) IRR: The Internal Rate of Return is a capital budgeting metric indicating the quality of an investment. It is the discount rate that makes the Net Present Value of the investment’s cash flow equal to zero. As any discount rate inferior to the IRR will provide a positive Net Present Value, the higher the IRR is, the better the investment will probably be.

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