Archive for March, 2006

Socially Responsible Investing v2

March 28th, 2006

There has been a lot of interest in the so-called socially responsible investing (SRI) approach to investing. One report I saw [can't remember source] is that 10% (or $1 out of every $10) is now invested with this philosophy representing north of US$2 trillion.

Almost all of this money to date is invested in what I’ll call “version 1″ of SRI (SRIv1). SRIv1 adheres to the philosophy of avoiding investment in companies which violate certain ethical or moral standards held by the investor. It is similar to the supposed philosophy of Google — “don’t do evil.” So SRIv1 investors are refusing to invest in companies which do “bad” things … e.g. gambling, pornography, polluting, manufacturing armaments, bad labor practices, cigarette business, etc. There are many options to choose from … some have a shorter or longer list of these “negative screens.”

Much of the SRIv1 monies have come from charitable foundations and individual investors who have clearer/simpler ways of determining what “bad” is. Unfortunately, it is difficult to find an investment screen which fits exactly with your values. I tried and gave up. And, frankly, while I’m interested in these negative screens, I’m more interested in doing good.

Socially Responsible Investing version 2 (SRIv2)

There is a new emerging class of socially responsible investing opportunities which focus on doing good (vs. not doing bad.) I call these “version 2″ types of SRI. That is, investing in ways which help make the world a better place … whether it be less poverty, better environment, better health[care], less war/crime, etc. There are a growing number of companies which enable you to invest your money, earn a return and have your money used to do good. Yes, these are financially viable businesses which have also have a social mission built-in.

One promising category of SRIv2 investing for lessening poverty is in the microfinance (also referred to as microcredit) business. Microfinance starts by providing small loans to poor entrepreneurs to help them build a small business generating profit to both repay the loan and to help themselves out of poverty. Read previous blog entry on this for examples.

I think that SRIv2 while small today has an even larger potential than SRIv1. I think that “doing good” is a superior motivator than “not doing bad.” In many ways, SRIv2 is a double win — you don’t invest in doing bad and you actually do something positive!

Now the challenge is getting out the word on SRIv2 initiatives!

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Posted in Social Impact Investing

Productivity tools designed for the poor

March 24th, 2006

KickStart, a non-profit based out of Kenya and San Francisco, is taking an innovative approach to fighting poverty by inventing tools optimized for delivering productivity for the world’s poor.

I met KickStart’s CEO and Co-Founder, Martin Fisher, a few months back at an education event sponsored by Seattle Social Venture Partners. Martin has spent most of his career living in Africa working with various different NGOs focused on development initiatives with Africa’s poor. He became very frustrated that despite working very hard and trying to be creative, he just didn’t see any material results in their efforts helping the poor out of poverty. He came to the conclusion that the development community was missing out on the basic fact that for the poor to become independently and sustainably non-poor that they needed to be able to earn income. No income = continued poverty. Handouts, while often life-saving in the short-term, aren’t a long-term solution. And development agencies are addicted to handouts.

KickStart’s first invention was a very efficient, low-maintenance, low-cost manual water pump which they named the MoneyMaker. This pump was designed for micro-farmers (the majority of farms in Kenya are less than 2 acres) at a low enough price point (a couple of hundred dollars) and an incredible return-on-investment … up to US$5,400 profit in the first year! How is this possible? Basically, the manual pump enabled micro-farmers to feasibly irrigate their fields resulting in a transformation from a single, subsistence crop per year to 3-4 “cash” crops per year. They have since introduced improved versions of the pump which enables farmers to reach deeper wells and to irrigate larger fields.

They claim that your donation of $200 will help one family out of poverty permanently.

I challenged their assumption that they needed to subsidize their products so much. If there really is such an amazing (only 1-2 crop) payback, why don’t they finance the full cost of the pumps with microfinance. Martin said they are looking into this possibility.

I think this is a very interesting social venture enterprise. I’m impressed with their focus on building (and selling) helpful products to some of the world’s poorest in order to help them help themselves out of poverty.

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Posted in Social Business

Gates Foundation on global poverty

March 24th, 2006

I heard Raj Shah, Director, Strategic Opportunities at the Bill and Melinda Gates Foundation speak this week at a public conversation in Seattle on local and global poverty. He made some interesting remarks and shared some data they use at the Gates Foundation.

  • Gates Foundation has a vision on basic human rights … that every person should:
    • have a shot at a healthy full-length life
    • have an opportunity for a basic education
    • be able to provide for their basic needs
  • Top things that developing nations have missed out on preventing them from benefiting from wealth creation enjoyed by developed nations:
    • Massive agricultural productivity increases
    • Industrial revolution
    • Knowledge revolution
  • Gates Foundation estimates poverty breakdown as follows:
    • 1 billion people live on <$1/day
    • another 2 billion people live on $1-$2/day
    • another 1 billion people live on $2-$4/day
    • for a total of 4 billion people living on <$4/day
  • To provide context for these income levels …
    • the USA federal poverty level for a family of 3 is set at $16,000/year
    • this is equivalent to ~$15/person/day or almost 4x what 4 billion people live on
    • many people think that the USA poverty level should be 2x of $32,000/year for a family of 3
  • 11 million children under the age of 5 die each year of which 50% could have been saved with proper vaccines at the cost of about US$0.12-0.13 each.
  • 430 million people have been able to escape poverty in the past few decades because of an agricultural innovation (which improved the productivity and resiliency of certain crops) known as the green revolution
  • Monsanto has developed a drought-resistant gene which could have significant benefit for many countries crop output — especially those which haven’t benefited from the green revolution

I looked up the World Bank’s latest statistics on global poverty in their 2005 report. Due to their research cycles, the latest data is from 2001:

  • ~1.1 billion people live on <$1/day
  • ~1.6 billion people live on $1-$2/day
  • for a total of ~2.7 billion people living on <$2/day

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Posted in Opinion, Poverty Facts

Does Microfinance Impact Poverty?

March 9th, 2006

There have been a lot of studies conducted on the impact that microfinance is having on reducing poverty. Recently, Grameen Foundation USA commissioned Nathanael Goldberg to research all of the relevant studies on microfinance in an objective manner. The summary of his research is published in a free report called Measuring the Impact of Microfinance: Taking Stock of What We Know.

Goldberg does a good job of summarizing the highlights of many impact studies so even though this is still a long read (56 pages), it focuses our attention on the core findings. He covers the criticisms of various studies and doesn’t shy away from the contradictions between studies or the negative or inconclusive results. The reality is that measuring impact on poverty – especially long-term, sustainable impact – is a very challenging research task. It is very difficult to carefully select a good control group to which you are comparing and to isolate the impact of microfinance itself (vs. other factors) on poverty reduction.

Here are a few highlights:

  • Two major studies strongly suggest that microfinance works better for the poorest than the less poor. Other studies don’t find this distinction.
  • There is strong evidence that female clients are empowered, though the data on increased adoption of family planning is less clear.
  • Quite consistently loans provided to women (rather than men) have a significantly greater impact on poverty reduction. Often loans given to men do not help with poverty reduction.
  • Even in cases where poverty reduction is not observed, having loans helps to smooth cash flow enabling improvements in quality of life (e.g. year round money to buy food.)
  • There are many indications that poverty reduction goes beyond the borrower families to the larger community … that is, there are secondary local, positive impacts on poverty reduction in the immediate village/area.

Goldberg’s Net: There is a wide range of evidence that microfinance programs can increase incomes and lift families out of poverty. Access to microfinance can improve children’s nutrition and increase their school enrollment rates, among many other outcomes.

Read the full paper

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Posted in Microfinance

Helping Small Entrepreneurs Grow Tall

March 7th, 2006

Dave McClure writes an articulate article (and appeal) for us to invest in microentrepreneurs just like we invest in entrepreneurs in the developed world today.

The working poor all over the world who live on $1-2 a day. Pound for pound, rupee for rupee, they’re the world’s tiniest yet most powerful entrepreneurs. But they’re not in Silicon Valley; the hotbeds of microfinance are in India, Latin and South America, and Africa.

Dave recommends Unitus as one of the most leveraged ways which you can invest in these microentrepreneurs. As of December 2005, Unitus works with 7 microfinance bank partners to serve over 500,000 microentrepreneurs and their families in 3 countries around the world. By the end of 2009, Unitus intends to grow their reach to over 3 million working poor. Read full article.

More details on how to support Unitus

[My family also actively supports Unitus with time and money.]

PHOTO INFO: Photo above is of a microentrepreneur running a tea stand business in a village outside of Hyderabad in India. She used her microcredit loan from SKS (microfinance partner of Unitus) of ~$100 to purchase her tea stand equipment. She paid a bit more for the stand to be mobile (it has wheels) so that she could re-locate as needed to busier areas of her village. Earnings from her tea stand business now now funds her children going full-time to school amongst other things.

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Posted in Microfinance