Monday, July 5, 2010

Social Entrepreneurship in America and Developing World

I am sharing the following HBR blog post in the spirit of lighting candles rather than cursing darkness.

In 2009, William Kamkwamba, a teenager from Malawi, made the rounds on American talk shows and coauthored a best-selling book. The source of his notoriety? A homemade windmill that provided power and running water for his family. Kamkwamba built it from trash, using an old textbook as his only guide.

In the United States, the idea of deploying small-scale windmills had been abandoned as too expensive and horribly inefficient. In Malawi, a teenager had built one spending less money than the average American eighth-grader's weekly allowance.

Kamkwamba's story points to an unrecognized truth of social entrepreneurship and innovation. The United States isn't a leader; it's a laggard.

Consider some of the most important social innovations of the past 20 years. The modern microfinance industry was pioneered in Bangladesh and has spread to virtually every country in the world. The business model that allowed the near-universal penetration of cellular phones into poor communities was born in Bangladesh, as well.

Meanwhile, two innovative ways to use cell phones' ubiquity in poor communities to change the world have emerged from Kenya: M-Pesa, a mobile-to-mobile money-transfer service, has become a model worldwide. And Ushahidi, a technology platform that relies on text messages to guide crisis response, became an important part of the rescue and recovery efforts in Haiti and Chile after the earthquakes there. It's currently being used to track the effects of the oil spill in the Gulf of Mexico.

India is the home of world-class innovators like Aravind Eye Hospitals and the education-focused NGO Pratham. The latter has had such success that its teaching approach is being adopted in several African countries.

So how does the U.S. stack up? Compare the negligible impact of One Laptop Per Child to the pioneering role of GrameenPhone in the global mobile phone revolution and the attendant gains in real income. Meanwhile Voxiva, a U.S.-founded social entrepreneurial firm, offers a complex, proprietary system to gather information from the field — a system that can cost more than $1 million to operate. But Ushahidi boasts a simple, nearly free (I just contributed to the $600 fund needed to deploy Ushahidi in Kyrgyzstan) open-source platform that was up and running in Haiti in less than 48 hours after the earthquake there. Finally, a recent report has shown that the most profitable microfranchise operations all originated in the developing world

Sure, there are examples of impressive and effective American social entrepreneurship. But, as these comparisons make clear, most world-changing innovations aren't coming from the United States.

Why? Well, for one thing, we haven't figured out how to train entrepreneurs successfully. The rates of entrepreneurship (measured by self-employment and age of operating businesses) are lower in the United States than in most other countries (even OECD countries). Despite all the money poured into various entrepreneurship-training programs, the failure rate of U.S. entrepreneurs, social or otherwise, has held largely constant for decades.

There are obviously many, many reasons for the U.S. lag in social innovation. But I believe the most important one is evident in William Kamkwamba's story. Kamkwamba's innovations were born out of scarcity and an up-close and personal understanding of both the needs and the available resources. U.S. social entrepreneurs are simply too insulated from the daily lives and needs of people in the so-called "two-thirds world."

Don't get me wrong: Innovations for the two-thirds world, coming from the two-thirds world are a great thing. But it's time the U.S. social entrepreneurship community recognized that it's following, not leading. Spend less time and money training entrepreneurs and funding contests domestically; invest more in social entrepreneurs globally. The community should be more "venture capital firm" than "incubator." It should be bringing innovations from the two-thirds world back to the United States, rather than trying to export ideas.

The world doesn't need our ideas (or our idealists) as much as it needs our funding and our help in scaling.

Source: Harvar d Business Review

Here is a Skoll Foundation video on social entrepreneurship:

Related Links:

Haq's Musings

TEDx Karachi

light Candles, Do Not Curse Darkness

Social Entrepreneurs Target India, Pakistan

Pakistani-American Entrepreneurs in Silicon Valley

Is Pakistan Too Big to Fail?

Thorium Energy to Save Planet Earth?

Fighting Poverty Through Microfinance in Pakistan

Silicon Valley Summit of Pakistani Entrepreneurs 2008

Pakistan's Multi-Billion Dollar IT Industry

Media and Telecom Sectors Growing in Pakistan

Pakistan's Middle Class Growth in 1999-2009


Riaz Haq said...

There are more poor people in 8 Indian states than all of Africa, according to a recent report. It is based on a new measure, called Multi-dimensional Poverty Index (MPI), that was developed and applied by the Oxford Poverty and Human Development Initiative with UNDP support.

Acute poverty prevails in eight Indian states, including Bihar, Uttar Pradesh and West Bengal, together accounting for more poor people than in the 26 poorest African nations combined, a new 'multidimensional' measure of global poverty has said.

The new measure, called the Multidimensional Poverty Index (MPI), was developed and applied by the Oxford Poverty and Human Development Initiative with UNDP support.

It will be featured in the forthcoming 20th anniversary edition of the UNDP Human Development Report.

An analysis by MPI creators reveals that there are more 'MPI poor' people in eight Indian states (421 million in Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh, and West Bengal) than in the 26 poorest African countries combined (410 million).

The new poverty measure that gives a multidimensional picture of people living in poverty, and is expected to help target development resources more effectively, its creators said.

Riaz Haq said...

CK Prahalad's theory on the purchasing power at the 'bottom of the pyramid' (BOP) has set the MBA circles buzzing about the big corp making money off the poor people in India by selling products to them.

Recently, Indian govt tried giving away cell phones to the poor in India who wondered out loud what they'd do with them. They'd rather have food rotting in govt warehouses given away to them so they can fill their hungry stomachs to survive.

Michigan professor Aneel Karnani calls Pralahad's BOP theory "at best a harmless illusion and potentially a dangerous delusion".

His new working paper, Fortune at the bottom of the pyramid: a mirage, really takes late Professor Pralahad to task.

Karnani argues that "the best way for private firms to help eradicate poverty is to invest in upgrading the skills and productivity of the poor, and to help create more employment opportunities for the poor".

Riaz Haq said...

Here's the story of how Acumen's Jacqueline Novogratz got into microfinance, as published by Businessweek:

I was an accidental banker. To please my parents, I went for an interview with Chase Manhattan Bank in 1983. They promised to send me into their offices in more than 40 countries and essentially audit the practices. It was an extraordinary job.

I had an epiphany in Brazil. We had made a $100 million loan to an airline owner who immediately moved the money to the Cayman Islands. Yet I saw all these people in the favelas who were incredibly productive but had no access to capital. I decided to leave Chase to work with a group that wanted me to help create credit systems in Africa.

As I was preparing to leave, though, the COO offered me a once-in-a-lifetime opportunity to work directly with him. He made it clear that, in a few years, I would be able to write my ticket on Wall Street. I was torn. No one wanted me to go to Africa: not my family, my friends, or my employers. But I thought, "If I don't go now, I might never go." So I quit.

I ended up going to Rwanda in the late 1980s to set up a microfinance institution and a bakery. I came back to the U.S. to get an MBA and work at the Rockefeller Foundation before returning in 1996. When I got back to Rwanda, all the women from the bakery had been killed. Of the other women I'd worked with, one was killed in the genocide, another saw her family killed, and another was a perpetrator who was sentenced to life imprisonment.

The aid system was broken. The financial markets alone weren't going to solve the problem. I wanted to invest in entrepreneurs who could see the potential of the very poor. The poor want to produce and consume and solve their own problems. In 2001, I started Acumen as a nonprofit venture capital fund. Instead of giving their money away, philanthropists could invest it in businesses. Now it's a $50 million fund that has leveraged another $200 million of capital and created 35,000 jobs. My dream is to build this into a more powerful asset class. Everything comes at a price. I have to say no to a lot of things I love to do. But we have the potential to help build businesses that change lives.

Riaz Haq said...

Here's a BBC report on Indians banks committing to work with microfinance industry in the wake of borrowers' suicides:

India's banking industry has thrown its support behind microfinance lenders after weeks of upheaval and confusion.

Major banks like the State Bank of India, Standard Chartered and Citi have all agreed to continue lending to microfinance firms.

The multi-billion dollar industry was on the brink of a mass default.

The banks' support has hung in the balance since lenders became embroiled in controversy in the southern state of Andhra Pradesh.

About four weeks ago, authorities started blaming microfinance firms for a string of suicides in rural villages.

They claim the suicides have been caused by company malpractice, heavy handed debt recovery methods and high interest rates.

Lenders deny the accusations.

Microfinance is designed to offer small, cheap loans to poorer borrowers, often in rural areas, who have difficulty accessing funds from banks.

Riaz Haq said...

Here's a Guardian report on social entrepreneurship in Pakistan:

The social enterprise landscape in Pakistan is nascent but fast-growing. From diverse sectors ranging from dairy farms to educational hubs to micro drip irrigation, early-stage enterprises have the potential of achieving hybrid financial return and social impact. Crucially, they are attracting interest from impact investors and business angels alike.

But how can these entrepreneurs be better financed, nurtured and trained?

Crucially, funding for small enterprises should meet the specific needs of the entrepreneur from seed financing to venture capital to growth equity. Social entrepreneurs need financial, but also non-financial, support such as mentoring, implementation guidance, and skills training development. Business school 'accelerator' programs and incubator hubs, which aim to accelerate the development of successful enterprises through such support mechanisms, combined with strong policy frameworks, can help create a long-term, self-sustaining ecosystem.

A report launched today by the Economic Policy Group (EPG) explores how incubator hubs can unlock the innovation potential of Pakistan's social entrepreneurs.

Successful incubator models already exist in some of Pakistan's premier business schools. The country's top business school, the IBA in Karachi, has in fact launched a partnership with Invest2Innovate (i2i), a social impact intermediary, to fast track the best entrepreneurs through its i2i Accelerator, a four-month program providing access to quality entrepreneurship education, skills, and opportunities.

"The IBA-i2i partnership helps start-ups who have passion and ability, but not the resources, to start their own businesses. It is a necessary step for growing and scaling viable businesses in the Pakistani market," says Kalsoom Lakhani, founder of i2i.

Other independent incubators across Pakistan, such as the Pasha Social Innovation Fund and Women's Business Incubation Centre, work with entrepreneurs across demographic segments in both rural and urban areas. The rise in popularity of these players is largely due to their ability to harness technology and digital media as communication platforms to empower entrepreneurs.

In the northern areas of Pakistan, where honey is one of the main agricultural commodities, Hashoo Foundation's Honeybee Project provided women beekeepers with beehives, as well as the associated training programmes to transfer this specialised skill-set to the wider community.
According to Dr Iman Bibars, regional director of Ashoka Arab World, "creating awareness for the potential of entrepreneurship among policymakers, relevant institutions and the public at large is essential to help establish an enabling environment that social entrepreneurs can flourish in."

On a macro level, the investment in human talent and institutions will raise both investor confidence and entrepreneurial confidence in the country. By changing minsets through incubator hubs, education, mentoring and training programmes, a strong enabling environment for social entrepreneurship can be fostered in Pakistan.

Riaz Haq said...

The term social enterprise may be relatively new in Pakistan but it is gaining popularity in its areas of development.

While it may be an unfamiliar concept for many engaged in local grassroots businesses they can nevertheless see the potential of engaging in ventures which have a social impact.

According to the Opportunity Pakistan Report – produced by i-genius, an initiative supporting social entrepreneurs worldwide – despite the country’s social and political unrest, it offers opportunities for investment and innovation.

“Countries experiencing transition are fertile places for new ideas to thrive”, said Shivang Patel, commission coordinator of i-genius. “Despite media attention in the west on all things bad in the region we found a country progressing through slow but significant positive reforms. There is considerable untapped potential for social businesses”.

A new wave of creative and confident young entrepreneurs has emerged developing innovative start ups in areas such as environment, health and skills. Scores of young women and men from remote areas of Pakistan are becoming social entrepreneurs.

A longstanding lack of investment in Pakistan’s public sector has prompted local business leaders to invest in ideas which tackle issues such as water and sanitation problems as well as those which can address its energy and environmental concerns.

One such example is Pharmagen Water. Established in 2007,it aims to provide poor communities in Pakistan’s second largest city, Lahore, with affordable clean and purified drinking water. It is supported by the Acumen, which invests in entrepreneurs and creates venture capital which can provide solutions to causes of poverty.

Another business offering a solution to parts of Pakistan’s energy strapped areas is SRE Solutions. Established just last year with Acumen’s support it offers to harness solar energy for off-grid customers in districts of Punjab and Khayber Pakhtunkhwa provinces.

Similarly a low-cost engineering and construction enterprise, Ghonsla, was set up in the aftermath of Pakistan’s devastating earthquake in 2005. With 73,000 people killed and large parts of its cities and villages destroyed in the north by the disaster, the plight of 2.5 million people left homeless hung in the balance

The initial funding for Ghonsla’s pilot project came from Seed, Social Entrepreneurship and Equity Development, a venture which supports startups and grassroots innovations.

Its incubation centres in Pakistan provide opportunities for young entrepreneurs in their early years of startup.