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

Earlier this month, we formally welcomed Mercy Corps as a NextBillion Content Partner. You might already be familiar with the Portland-based organization either through it’s many projects throughout the world and/or via its blog, Global Envision, which explores market-driven solutions to development and poverty. But we wanted to know more about where Mercy Corps is heading and how its past has informed its future, especially when it comes to business development. Via email, I had a chance to speak with Mercy Corps CEO Neal Keny-Guyer, who has lead the organization since 1994 and taken it in new directions.

SA: Mercy Corps’ history as a humanitarian agency spans back to its creation in 1979 in response to the Cambodian refugee crisis stemming from the genocide by the Khmer Rouge. I know it’s probably not easy to summarize it in a few sentences, but for those unfamiliar with Mercy Corps, how would you define its mission in 2012?

NKG: Our mission is to help people build secure, productive and just communities. We target communities suffering from conflict, disaster, political upheaval or economic collapse. It’s at these critical points in time that the status quo is challenged and transformational change can occur. We respond to crises with humanitarian relief but our programs rapidly progress to long-term recovery so families and communities can become self-reliant as soon as possible. Building resiliency so that people become less vulnerable to shocks is a key component.

Within these environments, the challenges people face are extraordinarily complex. We design our interventions so they’re led by the community, driven by the market and promote good governance. Without appropriate governance systems in place, change can’t be maintained in the long term.

Also key to our mission is seeking out innovations that provide game-changing opportunities to generate lasting change in the places we work. We look to create major breakthroughs to solve the world’s toughest problems, and we aim to do this at scale using sustainable funding mechanisms.

SA: Among NGOs, Mercy Corps was a relatively early participant in microfinance, beginning in 1989. What has been the approach to micro-lending and how has that evolved over time?

NKG: We try to make use of already existing market relationships – those between buyers, sellers, producers and consumers – to bridge social and political divides via business and trade. Lending is one tool we use, but we actually take a micro- and macro-approach. We’ve evolved from being an implementer of services through retail solutions to being an innovator in terms of looking at the microfinance ecosystem and architecture. That’s what has been missing in the microfinance world.

On the retail level, we’ve founded MFIs in chronically underserved areas around the world, and even in conflict zones like the Balkans in the 90s. Since 1989, our network has lent $1.75 billion.

On a macro level, we created a commercial wholesale bank in Indonesia called Bank Andara in 2008. The issue here was not the lack of microfinance institutions serving smaller business clients–on the contrary, Indonesia has one of the world’s largest concentrations of MFIs. But the regulatory environment allowed them to offer only the most basic services and kept them from growing to serve more of the country’s poor. Bank Andara is designed to be a partner to the microfinance sector by providing these smaller lenders with affordable capital and responsive, innovative financial products. Andara Link electronically connects MFIs and allows them to do branchless banking and e-transactions, like bill pay and remittances. Through Bank Andara, we’re serving about 450 MFIs, which represent more than 3 million end-clients.

SA: You joined Mercy Corps a short time later as CEO, in 1994, and guided MC toward a handful of key focus areas, including social entrepreneurship. What motivated you to take that step, and in the years since, what key lessons have you absorbed?

NKG: Despite all the aid dollars that have been spent for so many years, it has proven to be really, really tough to solve the serious challenges of our day–eliminating global poverty, transforming fragile and failing states, offering hope to the one billion young people entering the world economy, addressing climate change, turning extremist violence into peaceful mechanisms for change, and dealing with the massive influx of rural people into urban centers.

If these were just technical problems that could be fixed with money and brains, we would have solved them long ago. But they’re not. We recognize that neither Mercy Corps, nor any single NGO, nor even all NGOs working together, can solve the world’s problems.

In the private sector, you innovate or you die. You have to bring new ideas, new approaches, new products, more efficient services to the marketplace, or you don’t thrive.

There’s nothing analogous to this in the social marketplace. That’s why social entrepreneurship is so promising: it brings together the systems, the methods, the reach, of both the public and private sectors to tackle these very difficult problems.

We’ve learned the role of NGOs should increasingly be as facilitators and innovators. For Mercy Corps, we wanted to be among the world’s leaders in bringing different approaches, new ideas, new partnerships and new methodologies to development that potentially could be breakthroughs.

To that end, we created a dedicated social innovations team that looks for interventions with the potential to leverage markets, benefit large numbers of people and achieve financial sustainability. This team serves as internal consultants to help with a brand new idea that’s just forming, with designing a pilot program or developing a business model, as well as with thinking through investment, partnership and fund-raising strategies for initiatives that meet our “breakthrough” criteria. Along the way, one of the important things we’ve learned is that you have to have constant mechanisms for feedback and learning internally and with partners.

SA: Tell me about the formula MC uses to determine the appropriate role for action, particularly with regard to assisting in market and business development?

NKG: With over 30 years of social and economic development work in the world’s toughest places, we bring a global footprint and deep experience to the table when we consider our role for action.

We’ve learned that secure, productive and just societies emerge when the private, public and civil society sectors work together. They must be able to interact with accountability, make participation inclusive and build mechanisms for peaceful change.

We guide our decision-making through our “Vision for Change,” a framework designed to represent how key actors, operating principles and external conditions interact in the service of our mission.

More and more, Mercy Corps acts as facilitator, engaging stakeholders to overcome constraints that prevent the poor from participating to their advantage in markets. We ask questions like ‘why isn’t the system itself providing solutions? How can we address the constraints that are preventing it from doing so?’ Our role as facilitator lays the foundation for scale and sustainability by building on and aligning the capacities and incentives of existing stakeholders.

SA: Can you site just a couple of projects that you deem particularly successful in terms of social enterprise where MC has played a key role?

NKG: Youth employment is a huge challenge around the world. We see social enterprise speaking to the passion of youth for creating meaningful change. In the West Bank, unemployment is more than 25 percent – and twice as high in Gaza. Israel’s restrictions on the movement of goods and people severely restricts economic opportunities. Mercy Corps saw an opportunity to leverage an untapped market: the need for native Web applications and relevant local content in Arabic, coupled with the advance of cloud computing, which literally transcends political borders. In 2011 we launched the Arab Developer Network Initiative (ADNI) with Google.org and the Source of Hope Foundation. ADNI is building a critical mass of young Palestinians who can create and run successful Web-based businesses through technical and business training, peer-to-peer learning, mentorship and seed funding. We think we’re going to see a lot of social enterprises emerge from this talented crowd.

Another social enterprise we launched addresses the tremendous micronutrient and malnutrition problem in the urban slums of Jakarta, particularly among children. It’s too crowded for people to have kitchens, so they buy their food from food carts, but it’s high in sugar, salt and fat. The traditional way you’d solve this problem would be a school feeding program. And there’s still room for traditional ways. But we decided to try to do it through social enterprise, through a business. With a small grant from a private donor, which we turned into equity, we invested in local entrepreneurs. We had a group of MIT students help develop the business plan, engaged a local marketing group and rolled out healthy food carts. It’s an independently owned and operated micro-franchising model. We call the carts KeBAL, which translates to My Child’s Café. Today these carts are reaching thousands and thousands of families and kids across Jakarta, and we’re looking to roll out the model in other large cities throughout Asia. (Check out a story on KeBAL here).

SA: And when it comes to impact, how does MC measure success?

NKG: We evaluate three key components in every project we take on: scale, sustainability and social impact. Across the board, we implement rigorous program-level monitoring and evaluation standards, but we also measure agency-level mission performance through a set of ten critical indicators. This helps us understand the sum of the parts.

Unique to Mercy Corps is our dedicated social innovations team that seeks out financially viable and sustainable breakthrough initiatives. They make sure we’re on the edge of what’s considered a prudent degree of risk. In this realm we look for interventions that can reach more than a million people within five years and be financially viable after Mercy Corps is no longer involved. Bank Andara hit this goal, but we don’t expect everything in our pipeline to succeed.

SA: So much of Mercy Corps’ work is in post-disaster countries, where government institutions (before and after the disaster) have been ineffective in responding to citizens’ needs. In Haiti for example, we’ve written about many social enterprises that work closely with NGOs to develop businesses and access to markets. How has Mercy Corps worked with businesses and other stakeholders in Haiti, and how can that be applied to other post-conflict and disaster countries?

NKG: A lot of the fragile countries we work in have chronic shocks, yet the people who need a safety net the most are often left out of that system. In Haiti, which lies along a fault line and in the path of Hurricane Alley, we saw the need to protect people’s livelihoods and homes against future disaster, so we collaborated with a variety of insurance and microcredit partners to create the “Microinsurance Catastrophe Risk Organization.” (Pictured right: Keny-Guyer in post-earthquake Haiti).

MiCRO’s insurance product costs 3 percent of the loan value. The policies combine both parametric and basic risk options, which create the flexibility that can cater to specific—and unexpected—-needs. The team later created a cholera amendment to loans, so that if an income provider falls ill, it won’t result in destitution for the family. During the 2011 hurricane season, $1.5 million in insurance benefits were paid out.

In Haiti, as in other disaster areas, key to getting things up and running quickly is to take advantage of existing infrastructure and find the right local partners, while keeping an eye on long-term recovery goals from day one.

SA: Reaching scale is beyond a buzz term these days. But it’s nonetheless critical to get beyond pilot projects and build self-sustaining (AKA profitable and ROI) businesses and job growth to truly generate poverty reduction. How does MC build scale into its work?

NKG: Building scale means getting the right partners involved and the right incentives in place. Mercy Corps can’t do it alone.

This is where our role as facilitator and innovator becomes hugely important. The more holistic a development project, the more heavily dependent it is on outside institutions, regulatory environments, and factors we can’t control, which add enormous layers of complexity to our work, particularly in terms of scaling.

Just this summer we’re launching a project that puts these issues into context, and which may have huge implications for our work around the world. The Swiss Agency for Development and Cooperation was looking for food security proposals last year. Instead of coming back to them with an improved seed variety or a series of workshops on pest control, we considered the full spectrum of challenges smallholder farmers face, and pitched an out-of-the box holistic solution: a bundle of mobile-based services aimed at increasing incomes for farmers. We called it Agri-Fin Mobile, and our role is to get all the ecosystem players talking with each other and to put the right incentives in place so everyone gets something out of the deal.

So, for example, the bundle of services reaches farmers at every stage of the farming cycle with services like microcredit and micro-insurance, precision fertilizer information, weather data, market prices, and the ability to send and receive money, all through the mobile phone. But every piece of that puzzle is provided by a different player – mobile network operators, app developers, research institutions, local agriculture extension workers and input supply companies, microfinance institutions, and banks. Bringing in all these partners ensures that the farmer gets financial services and agriculture information free or at competitive rates. The services last long after Mercy Corps has left because there’s a financial incentive to keep it going.

To SDC’s credit, they were not only open to this idea, but willing to fund a five-year project split into two phases: a pilot and an expansion. This is the kind of design that helps us scale. The first three years of the pilot will involve extensive testing and collaboration with partners to ensure pricing, delivery mechanisms, product specifications and technology are sound and cohesive before expanding to an additional five countries in phase two. Flexible funding like this lets us get the model right so we can tweak it to work on-the-ground in other contexts.

SA: When it comes to real results and lasting impact for reducing poverty through business and social enterprise development, what initiatives or models (internal or perhaps outside of MC) really excites you these days?

NKG: Really the most exciting development to come along in my lifetime – and which is still one of the most promising tools for accelerating impact in terms of social development – is the mobile phone. Whether it’s in terms of delivering financial services, market info, promoting economic development; whether it’s lab technologies on a chip that can improve healthcare; whether it’s expanding access to education and skills training, the use of mobile technology is changing the way we reach people, who used to be considered nearly unreachable, with all kinds of valuable services. It’s just amazing.