NB Financial Health

Thursday
July 3
2014

Geeta Goel

Facilitating New Markets: Philanthropies are uniquely suited to fostering market-based solutions to poverty

Ensuring that market-based solutions to social problems succeed is no easy task – especially when you look beyond products to larger scale, sectorwide shifts and opening whole new market segments. Monitor Deloitte’s recently released Beyond the Pioneer report enumerates and evaluates a number of the most critical barriers to such scale, and represents an important contribution to the impact investment field. But where the publication becomes most interesting is with its call for organizations to step up as “industry facilitators” and to help overcome key challenges.

How do such facilitators function? As Omidyar Network’s Paula Goldman describes it, they “resolve barriers at both the enterprise levels and the wider business ecosystem, benefiting many firms, not just one.”

Naturally, the next question to arise is: What type of organization is best suited to play the role of industry facilitator? Based on our (The Michael & Susan Dell Foundation’s) experience in India, we see substantial potential for philanthropies to act as facilitators in order to help develop new market sectors that focus on serving the poor.

Philanthropy’s web of influence

The basic rationale for philanthropies to act as industry facilitators is simple:

  • Foundations have capital, typically in flexible form

  • They have the mandate to deploy that capital for social impact

  • They have the flexibility to measure the success of investments at a broad sector level, rather than being driven by the success or failure of single investment

  • Unlike traditional investors, they face few time constraints in terms of generating financial returns

From an ecosystem viewpoint, however, what’s more important is the web of influence that philanthropy can bring to bear in facilitating not just market growth, but the right kind of responsible growth.

1. Philanthropies that make investments in commercial enterprises must, by definition, prioritize the needs of businesses and clients in equal measure.

They are thus ideally situated to help shape responsible industrywide behavioral norms. By investing in India’s urban microfinance sector at its earliest stages, for example, the foundation was able to directly influence standards of behavior and client interactions. In practice, this meant long hours spent in board meetings, advising investees as they managed operational details such as procedures for conducting accurate credit checks of clients who lack documentation of income (in order to guard against over-indebtedness), along with developing internal training sessions and guidelines to govern client interactions, and the like. Building these practices into the industry’s DNA during seed funding has helped to ensure the development of a sector that appropriately balances profit and client well being.

2. Philanthropies work within a network of like-minded, development-focused organizations.

Participation in these networks offers the ability to help shape another layer of the ecosystem, specifically in the creation of broadly accepted external frameworks that govern behavioral standards in these new sectors. For instance, our experiences working on the boards of urban MFIs in India directly informed our work — alongside the Gates Foundation, CGAP, the Microfinance Information Exchange and others – in creating standard metrics for social performance, and to drive the transparency of microfinance institutions across the world.

3. Philanthropies often have deep ties to the communities that companies are seeking to penetrate.

One of the biggest challenges facing new markets is that of demand; experience has shown again and again that need for a product (say clean water) does not always lead to demand. How can philanthropies act as facilitators on this front? The challenge lies in first reaching the intended customers, and second, in helping to change their awareness and behaviors. We believe that this role is sustainable, manageable and well within philanthropy’s mandate.

Again drawing on our experience in India, we have been able to leverage existing distribution channels and relationships to reach the identified target segment — the poor — more effectively. For example, we’ve supported:

Impact capital can help to address unequal access to needed products and services

The Monitor Deloitte report makes a cogent case that committed facilitators are vital to ensuring the development of new markets that work for the poor. Our own experience has amply shown us just how well-suited philanthropies are to stepping into such a role, and to using impact capital and investments as a tool to bridge inequities in access to products and services that can help change people’s lives for the better.

Geeta Goel is responsible for leading the Michael & Susan Dell Foundation’s global Mission Investing function.

This post originally appeared on the Michael & Susan Dell Foundation blog and is republished with permission.

Categories
Entrepreneurship, Impact Assessment
Tags
entrepreneurship, Impact Assessment, impact investing, philanthropy