The opening plenary of the Skoll World Forum last night was fascinating. Brilliant because it opened with a set by Baaba Maal and insightful because of a debate among leading members of the international microfinance community. The debate included:
- Jonathan Lewis, Founder and Chair, Microcredit Enterprises
- Alvaro Rodriguez, Chair, Compartamos Banco
- Roshaneh Zafar, Managing Director, Kashf Foundation
If you’re like me and have only a modest knowledge of microfinance, you may not be aware of the current controversy in the world of microfinance. Microfinance institutions have been criticised for making too much money from the poor. See this New York Times article from last year or this article in the Atlantic by Kentaro Toyama or this slightly older Economist article. The long and the short of it is that some microfinance institutions stand accused of making too much money from the poor and not actually helping them out of poverty.
So I watched the debate with fascination and it dawned on me that this debate is at the crux of what is and what is not social entrepreneurship. In the course of the discussion, Alvaro Rodriguez (representing one of those institutions that has been accused of making too much money from the poor) makes the following argument. He said:
Is it possible to maximise returns and also have positive impact. Obviously we believe it can. It can be the case. It very much depends on how you define your positive impact. No question in our case we define positive impact as providing benefit to our current clients. But for us the definition of impact goes beyond our current clients to those clients who don’t have access. That is a very important element in our definition of impact. If we want to fulfill the mission of serving the most people as soon as possible then growth is important and not only growth but speed of growth. And the best engine for that is profit. So if you are maximising your profit because you are serving that person who today doesn’t have access.
This is obviously the hard right wing of social entrepreneurship. We need to make as much money as possible to serve as many people as possible. It certainly simplifies things. But can it be true?
For me it reminds me a lot of mobile operators in Africa who argue that they need to keep interconnect rates high in order to subsidize roll-out to rural areas. They need to maximise profits in order to serve more clients.
What is problematic about this approach is that it is almost impossible to test its validity. There is an element of truth here that you need large investments to scale and to attract large investment, you need attractive profits.
In a competitive environment, I think this might actually work but in developing countries in the area of microfinance there is not a lot of competition so we are obliged to trust Compartamentos and others that they are doing their best for their customers. Similar things can be said about mobile operators. And generally without checks and balances, greed has a tendency to win out.
So what’s the answer? I think separating the for-profit and not-for-profit intentions of a social enterprise might be one idea. With Open Source-driven social enterprises like Village Telco this is actually quite feasible. We can encourage philanthropic investment in the open technology that drives Village Telco and this can be a tide that raises all ships whereas investment in Village Telco as a for-profit enterprise can be done on a more ROI-oriented approach. The downside for a tiny organisation like us those is the overhead of maintaining a for-profit and not-for-profit entity to manage this. At the moment this just isn’t practical.
What I like about Social Entrepreneurship is not that it is a very clearly defined concept, it isn’t. But it does place the conversation squarely where it needs to be, namely focused on creating and supporting organisations that can effectively serve a social mission and still make money in a market-driven manner. We/I need to get a lot better at this.