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

My entry into the world of BOP is shockingly recent–in fact, I?ll even admit that I learned what the acronym stood for (Base or Bottom of the Pyramid–referring to a very large and often marginalized part of the global income strata) as recently as June. This was after I left academia, and had already decided to pursue a notion that very few in my graduating class would take seriously–the fusion of private sector and social interests to create logical, sustainable solutions that allow poor people to reap the benefits of their own hard work and to direct their own futures.

To the naysayers, I now say? watch out. Or rather, just watch! It’s happening, and, not surprisingly, it’s happening faster than any USAID reform package or overhaul of the UN, though perhaps not as fast as the next iPhone. But that’s a different story, and one that the New York Times will undoubtedly be covering in great detail.So, why do I believe my ?crazy notion? is gaining traction? I?m not by nature an optimist, or easily swept away by inspirational tales, but two essays that I recently read from Innovations (Winter/Spring 2007) provided me with some profound evidence, and with cause to re-consider how fast BOP solutions can develop into reality.

The essays, by Jacqueline Novogratz (Patient Capital), Matt Flannery (Kiva and the Birth of Person-to-Person Finance), each chronicle the conception and actualization of market-based ideas that removed barriers to the creation of greater economic and social well being for the BOP. (Nick Hughes and Susie Lonie also have a great essay (M-PESA: Mobile Money for the ?Unbanked?) that is equally relevant and worth the read!).

The stories span a wide spectrum of sectors and places, from telecommunications and finance in Kenya to agriculture and ambulance service in India. Yet, despite their range, each essay reveals common themes: redefining perceptions of the poor, achieving tangible results at scale, and struggling with legal and conceptual paradigms that are inadequate to accommodate people and organizations with ?blended value? purposes.

The authors describe fits and starts of progress, difficult struggles, and even some very large obstacles that still remain. But, ultimately, their accounts are about ideas taking root and then taking off, even as the organizations championing and steering them are still in the process of building and defining themselves.

Novogratz’s piece describes a vision of a world where concepts of philanthropy and mechanisms of the private sector combine and transform to produce more abundant ?patient capital.? This capital enables investment in viable and scalable solutions that simultaneously fill market gaps and tackle difficult social problems.

As founder and CEO of Acumen Fund, Novogratz provides compelling evidence that Acumen Fund’s portfolio investees (recipients of patient capital through debt and equity structures tailored to meet their needs) are already producing tangible results. Having interned with Acumen Fund last summer, I gained a real sense that what Novogratz writes about her in essay is a true reflection of the organization’s growing investment experience overall.

One example she provides of tangible results from patient capital is 1298, an Indian ambulance company named for its emergency dial-in number. 1298 has filled a major gap in life-saving services in Bombay/Mumbai by operating under an innovative business model that uses sliding price scales and pushes constantly to lower its costs. This model allows 1298 to be both economically viable and to fulfill its ethos of ?service for all,? regardless of users? income levels.

Like many blended-value enterprises, 1298 was not initially viewed positively by local government. As a U.S. non-profit investing abroad in for-profit ventures, Acumen Fund itself has and will continue to face the ambiguities of multiple legal systems, and the apathy, or even, occasionally, the suspicion of local authorities. Yet even as some of these questions are being hammered out and negotiations take place, results from its investees multiply quickly, and the attraction of patient capital grows.

Flannery’s essay on Kiva tells the story of the organization that he and his wife began in 2005 as an on-line lending platform of person-to-person microloans to small business people in the developing world. His story reveals many challenges, points where despair appeared to rule, and then a stupendous amount of success.

The explosion of popularity for Kiva’s person-to-person loans occurred in leaps and bounds, first by a fortuitous featuring on a popular blog post, and later by appearances on Oprah, in the Wall Street Journal, and in many other major publications. Its surge in popularity has led to the saturation of available investees on Kiva.org on multiple occasions, and to the startup of two similar organizations also operating via the web. Among the organizations jumping on board and latching on to this concept is eBay, which recently launched MicroSpace, a peer-to-peer lending site. (Read more about MicroSpace on NextBillion)

As Flannery explains in his essay, Kiva has yet to reach the ultimate goal of using interest rates for borrowers and returning the interest accrued on microloans to original investors. This has been stalled by the SEC and Homeland Security, which have no provisions or capacity for dealing with person-to-person microloans across international borders through an intermediary non-profit. The problem is nothing if not deeply systemic, but an increasing number of forward-thinkers like the founders of Kiva are challenging the contsraints of ingrained private-social-government definitions and gaining traction.

According to Flannery, dedication to incorporating interest rates remains important because it would allow micro-borrowers to differentiate themselves through something in addition to their personal stories, and because ?rates change the relationship between lenders and borrowers from benefactor-to-dependent to business-to-business,? empowering the poor by making them business partners. Even though this fundamental changing of perceptions may be out of reach for now, so it also seemed with business-oriented philanthropy only a little while ago.

The rapid outpouring of public interest and the rapidly expanding amount of capital exchanged through Kiva show that innovative finance and enterprise-based approaches to philanthropy appeal not only to larger funds and wealthy donors, but to masses of ordinary individuals as well. This, too is scale!