Social Entrepreneurs Turn Business Sense to Good

Wednesday, December 3, 2008

By Steve Hamm

As chief executive of Mercy Corps since 1994, Neal Keny-Guyer helped turn the Portland (Ore.) relief organization into a global powerhouse with 3,500 employees and a budget of nearly $300 million. But he was taken aback last year when one of his lieutenants proposed the radical step of buying a bank in Indonesia. Why would a not-for-profit disaster relief agency go the capitalist route and buy a bank?

Gradually, though, he warmed to the idea. He saw that, if Mercy Corps operated a wholesale bank that could offer capital to some 2,000 local microcredit organizations and had an ATM network, it could help turn microfinance into a powerful force in Indonesia. Keny-Guyer was in uncharted territory, however. In the last days before the acquisition closed in May, he feared the risky gambit would end in disaster. “I imagined a newspaper headline saying, `Mercy Corps’ Bank in Bali Fails,’ ” he recalls. “I thought of the reaction of our donors to that bit of news.”

Now, as the renamed Bank Andara cranks up operations, Keny-Guyer is hopeful. If the strategy works in Indonesia, he says, Mercy Corps may try it in the Philippines next.

This departure from business as usual in the nonprofit realm is part of a major shift in the way people are taking on the world’s social problems. In developing nations and parts of the U.S., governments have failed to make substantial progress against poverty, disease, and illiteracy. Traditional charities and social service agencies often provide Band-Aids for problems instead of long-term solutions. Now a new breed of do-gooder?the social entrepreneur?is trying fresh approaches. While the term is used in many different ways, there’s a narrow definition that gets to the heart of what makes these people stand out: Rather than depending solely on handouts from philanthropists, social entrepreneurs generate some of their own revenues and use business techniques to address social goals. “Traditional ways of doing things haven’t produced the kind of progress we all hoped for, so we’re trying to come up with new approaches that are truly transformational,” says Keny-Guyer.

The idea of the social entrepreneur has been percolating for decades, but it has become a mass movement in the past couple of years. Thousands of people are launching ventures and trying out new business models, both for-profit and nonprofit. Now that the global financial crisis is squeezing charitable giving, socially oriented organizations are pushing even harder to reduce their dependence on donors and generate their own funds. Lehman Brothers, for instance, was a generous backer of both nonprofits and social entrepreneurs. No more. In this climate, only the most efficient and effective organizations will thrive.

Social entrepreneurs are being backed in part by a new generation of super-aggressive philanthropists and social investors.

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Source: Business Week (link opens in a new window)