Mission Drift: The Bogeyman of Social Entrepreneurship

The initial public offer (IPO) by SKS Microfinance is a landmark event: likely to set the stage for other IPOs in this area. I find much to cheer about in this development as financial inclusion goes mainstream and scales so a dream turns to reality for many many more people who live under $4/day. Not unexpectedly, the recent hoop-la about the IPO has come from activists and NGOs who worry that this move spells a mission drift - a profit from poverty mentality versus helping the poor, that has always been the bogeyman of social entrepreneurship.

The issue is that pure philanthropy does not scale. Charity funding is critical in providing a start to change-makers driven by passion for helping the poor. However, once a business model becomes sustainable, its capital need is far greater than what can be met by traditional philanthropic sources.

But change is hard for many to swallow and hence appears the bogeyman of mission drift - all the things that are wrong with the business world. But the bottom line is that there are also many things right with the business world. Besides- just as many albeit different, things are wrong with the charity model. Of course things can always go wrong, with greed overtaking social mission as MFIs go mainstream, but that risk is far lower than the risk of stagnation and besides financial instruments exist to manage it.

With access to more capital, I actually think things will improve for the clients of MFI because there will be pressure to bring interest rates into alignment with traditional banks. In recognition of this Businessworld article says "Earlier this year, India's finance minister said non-banking financial corporations (NBFCs), including some like SKS, can be granted banking licences, signalling a greater role for MFIs. But India's central bank has pulled up MFIs for their high interest rates -- about 25-27 percent. That is about double the rate at which they borrow from banks, but still lower than moneylenders."

Actually this business of mission drift has become a particular peeve of mine because of my past 4 years of experience directly working with social entrepreneurs. The SKS IPO provides an example against which I can generalise. Budding social entrepreneurs face an uphill task as it is. They initially get ignored by traditional capital and foundation money is so scarce that the competition in the field of social entrepreneurship is unhealthy (results in inability to merge or collaborate later on). Two factors come into play: First, self doubt in the mind of the entrepreneur in entertaining a realistic revenue generation (Am I being social enough?) plan for sustainability. Second, many opt for an incorrect business model which later becomes difficult to change, especially given the negative feedback from their initial supporters. The way I see it, the issue of mission drift is an operational issue - to be managed like any other risk whereas having a built-in plan to get to sustainability and scale is a strategic choice which guides impact in the long run.

Microfinance to Mainstream?

Micro finance methods have captured our imagination, hearts, social conscience and even our technology innovation dollar, but, sadly, never the institutional support that ideas need to go from boutique to mainstream. Till now. Eric Bellman, Wall Street Journal July 6, 2009 headlines "Rural Demand Helps Indian Banks". Bless his WSJ heart, the byline says "once considered a burden, remote branches prosper on aid for farmers". Note: aid, not loans. Other than that quibble (though technically aid is correct, because there are some subsidies involved but given all the baggage associated with the word "aid" I would rather use "stimulus" or something else), the rest of the article is worth every bit of ink. India has been resilient to the global meltdown because of growth in rural India; technology to reach remote areas and as market is growing, traditional for-profit banks are moving in too- completing a virtuous cycle. Key points:

- rural banking growth - from 12% to 20% has offset decline in urban - from 28% to 19% which is more tied to the global economy

- technology helps - remote branches have a finger-print scanner and mobile phone for identification and processing (State Bank of India) - loans and deposits are small amounts

- the benefit is felt by the state owned banks, which were forced to maintain rural branches (at a loss), but as the "market" is growing, multinationals (e.g. HSBC) are entering the market -thus taking it mainstream

-because of low default rates etc. - interest rates are competitive (10%)

- customer profile- "No one in my family has ever had an account"

I generally highlight media coverage of business+technology+social impact - and coming from WSJ - I thought it was especially noteworthy. In fact it made me track down other noteworthy articles (one especially on cell phone growth in India) by the same author.

For emerging markets -if there is a killer app - it is banking - whether it is delivered through cell phones, kiosks or moving vans; think of the potential customer base! I hope this story is an indication that "microfinace" is moving to "finance" - its the kind of change the world needs.

A different kind of story - win big, think small

Have you noticed how the stock market never goes up or down? It soars or plummets. Somehow hyperbole hustles us to the same stories over and over. So whenever I see mainstream news with a story truly different I feel the need to applaud. Such is the case with CBS news story on micro-lending. Bigger is not always better. Think micro-loans. And how they are giving good returns when banks are loaded with "toxic assets" of large loans. The CBS story, on location in Peru, is one of the best explanations of micro-loans (features MicroPlace, Ashwini Narayanan) and truly inspiring. Another big player in this space is Kiva and there is a nice blog with details about the two. But here's the main point: Micro-finance isn't so much about the fact that the loan amount is small - its about the fact that loans are being made to people who the banks have declared "not creditworthy". It means loans are made to people normal banks don't give loans to. Banks, using metrics based on collateral (i.e. how much they already own), decided that these people could not pay back their loans. In other words, you have to be rich already to get a loan. Now isn't that backwards? This is the Big Idea; The Big Win of micro-lending phenomenon. Micro-loans and the fact that they get almost 99 percent payback prove that establishment thinking is wrong; can be wrong. So it is really unfortunate that micro-finance still remains in the "boutique" category (yes- just calculate the percentage of money in micro-loans versus total lending) and seems a long way from becoming mainstream. There are entrepreneurial efforts (e.g. UnitedProsperity) to make lending to the poor more viable by raising money for guarantees and this is change in the making.

Change doesn't just happen - It needs faith and cheerleaders - and -yes mainstream media can do a lot by uncovering stories like this one. Cheers for CBS.

Wall Street Woes- and what to do about it

I don't know about you but I am getting very tired of hearing about Wall Street woes; about executives who must sell their jets and how, somehow, that translates to average folks getting laid off. Its just fear tactics. The issue is Wall Street has only one metric - financial performance. So Wall Street is always overly emotional - down in the dumps or unnecessarily bullish, which leads to hyper-movements of capital. It is an overly constrained system. Wall Street has boxed itself into a single-bottom-line system and doesn't know how to get out. So folks, - if the system isn't working change the system - think out of the box.

Its time the financial wizards admitted they have no clue what to do and start learning from us research types. Wall Street has one metric - the bottom line - and the entire house of cards is built on that. In new product development, at a minimum we evaluate around three metrics - faster, better, cheaper - its the mantra that modulates expectations -maybe you hit one maybe you hit all three - at least there is room for experimentation and different vectors to push. If wall street followed an R&D model it would look for and formalize other metrics besides financial performance. That would allow social entrepreneurs to go mainstream instead of being boutique; get on Wall street and seek capital. allow diversification of capital instead of all based on profit. I don't know what the right answer is but here are some ideas:
- following the micro-finance model - rate a company on how many people are served (not just amount)
- Tax credits (like R&D credits) for companies that serve the BOP - after all they serve those whom the government serves
- IPO for social businesses except - instead of financial returns give voting rights on how to run the company
- New job creation - e.g green job creation gets points
When I first started at HP, we used to say - focus on the value you create not the stock price. If you create value stock price will follow - Value for us was high quality products and a satisfied employee base and a welcoming community wherever we operated. Yes - its time to get back to basics - its takes more than money to be a good capitalist.
I am glad the auto-industry is not getting a bailout; but I am not glad the Wall Street isn't thinking about more change itself.

Sustainability through Business Model Innovation in Education

Marvin Hall, from Kingston, Jamaica, Founder, Halls of Learning, Stanford Digital Vision Fellow, 2006-2007 has a passion for igniting the creativity in children, especially at-risk inner-city youth. His project at Stanford was Stimul-I about engaging kids through hands-on Robotics. After leaving Stanford, Marvin has continued his work in Jamaica and recently he writes about a program he has created "Lego Your Minds Jrs". He has created a model, I think, educators should seriously consider. Marvin writes:

"Being back in Jamaica the past year, I had to focus on rebuilding finances after the fellowship at Stanford but still explored the possibilities of how to expand our Lego programmes here. To that end, we were not able to get funding to take the team to the World Robotics Olympiad and I was forced to rethink my strategy....or better yet, come up with a business strategy for going forward. In March, I started a 3-month programme in the mornings at my son's school using the Motorized Simple Machines Set. The boys and girls responded very well to the activities and were excited to come to school earlier for those mornings. At the end of the term, the programme was mentioned at the school's closing ceremony and the class surprised me with an award for working with them.

In July, Halls of Learning launched "Lego Yuh Mind Jrs", a summer camp for children aged 4-11 years old. While most of our marketing was done through personal emails and spread virally, Jamaica's leading newspaper, The Gleaner, sponsored us with a series of print advertisements. We rented a large classroom and hosted the camp there. In one section of the room, we had the 4-5 year olds working with the Early Simple Machines Set III and in the other section, we had the older kids working with the Motorized Mechanisms Set. Over the 4 weeks of the camp, we had 114 participants. The cost to each participant was about US$100.

In August, I packed the summer camp materials into my car and we took it on tour to 5 at-risk communities. With that, the Lego Yuh Mind Jrs experience was delivered to another 65 children at no cost, as a part of our outreach. It made me realize that there is also a great opportunity to act as a service provider to the corporate and church foundations who have funded community centres in these neighbourhoods. They have the spaces, but there is a shortage of programmes.

There is good momentum to launch a "Lego Yuh Mind Jrs Club" that would be offered as an after-school activity. This will be our next move in the short term.

One of my biggest challenges is to find new activities for the Mechanisms and Early Simple Machines Sets and hence attract repeat customers from the summer camp who feel like they have built all the models already. I will also be ordering the Pneumatics Add-on set. I would eventually like to have my own headquarters to launch these programmes, but renting space will keep my overheads low in the short term.

Lego Yuh Mind Jrs was profitable, portable, mobile, and is scalable.
[Note: "Lego Yuh Mind Jrs" is derived from Jamaican dialect. "Lego" means 'let go' and "Yuh" means 'your'. So Lego Yuh Mind can mean 'let go your mind', 'free your mind' and to many of the children 'build your mind'. Our first robotics workshop in 2004 was called "Lego Yuh Mind", used Mindstorms with Robolab and was for older students. So Lego Yuh Mind Jrs distinguishes this brand for a younger audience and as the stage before robotics programming. The connection with LEGO goes without saying :) ]

Lego Yuh Mind Jrs inspired at least 100 happy parents and made another 100 curious. It is a great opportunity to build on and I can see our sustainability on the horizon."

Congratulations Marvin - great work.