NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

I recently had the chance to work on a case study with Late Lawson, Director of Economic Development for CARE, and Professor Ted London at the Ross School of Business at the University of Michigan. The case study centers on CARE considering how to best incorporate an explicit market-based approach to poverty alleviation within its portfolio of poverty alleviation activities.

In 2005, CARE started a three-year pilot initiative in Central America to assess whether revenue-generating ventures could provide large-scale, sustainable, and scalable poverty alleviation outcomes, as well as an opportunity to generate excess revenues for the organization itself. One of the primary catalysts for CARE to move in this direction was CARE’s experience in microfinance. In 1998, CARE had founded EDYFICAR, a microfinance institution in Peru. The MFI quickly became a business leader in the country, providing thousands of low-income families with access to much needed capital.

During the three-year pilot project, CARE started or supported many social ventures, primarily co-ops in the agricultural sector. Many of the ventures, however, had become overly dependent on CARE for support and struggled to find a path towards financial and operational independence. Furthermore, the ventures did not seem to offer any prospect of generating revenues for CARE. Part of what contributed to these problems was that CARE had not developed a systematic approach to helping ventures reach maturity. As a result, many in CARE felt that the organization lacked the skills and culture necessary to do this work well. There were some, though, that still felt that revenue-generating projects were an effective complementary strategy that could yield sustainable and scalable poverty alleviation in the long-run.

This tension is common to many large intermediary organizations that are trying to adopt a market-based approach to poverty alleviation. One of the reasons for this is that many of the organizations that jumped onto the BoP band-wagon did so without understanding all the factors involved with implementing such as strategy. And understandingly so. The BoP approach is relatively new to the poverty alleviation scene and does not yet have extensive research and study behind it.

Today, however, these organizations, like CARE, are facing and asking tough questions about their poverty alleviation strategies. For example:

• At what point do we stop supporting these ventures?
• How do we systematically help social ventures reach financial and operational sustainability?
• How do we balance business and social impact objectives?
• What do we really bring to the table? What are our core competencies in developing social ventures?
• What are our weaknesses and how do we find ways to compensate for them?
• What other organizations should we partner with that have complementary resources and capabilities?
• Should we take an equity stake in these ventures, or leave them independent? What are the pros and cons?

As the BoP movement continues to evolve and mature, it’s important that we develop a critical eye, ask the tough questions, and be open to change and scrutiny. These questions aren’t bad. Nor should they be a source of discouragement. They are simply the result of the BoP movement’s evolution.

And if we don’t ask these questions and try to find answers for them, market-based solutions to poverty alleviation will become like so many other development and innovative poverty alleviation methods that have gone before us: a fad.