Monday
October 8
2018

Lexi Doolittle

The Least Sexy Approach to Development: Why We Need to Focus on Systems Change

Social development work, by its nature, focuses on the cracks that permeate our global political, economic and social systems. The excluded, poor, under-represented and disenfranchised fall through the cracks in each of these imperfect systems – and they have few support systems, safety nets or recourses by which they can re-enter the mainstream and realize the life they had envisioned for themselves.

A growing contingent of development sector entities is focusing on how to address these underlying faults in the systems, as an alternative to perpetually needing to address the cracks’ downstream ramifications. This “systems-change” methodology is hallmarked by both its innate sensibility as well as its often-overwhelming complexity, which has limited its widespread implementation.

 

Facilitating Change – Not Sexy, But Essential

A joke in the systems-change sector is that it is probably one of the least “sexy” facets of development work, but also one of the most critical. Complicated, long-term, constantly iterating efforts to nudge a system towards more inclusive operation do not lend themselves to mass appeal. However, these efforts are essential: an effort to permanently redefine the parameters of our economies to incorporate the poor and underserved for perpetual positive social, economic and political impact.

Systems change interventions broadly supply the grease in the wheels that allow otherwise unlikely market-level exchanges to go forward. These exchanges are unlikely because at least some of the participants are poor and from underserved populations, and thus do not have access to the financial, technical or knowledge/network resources they require to fully participate in the formal economy. But, with the assistance of a systems-change facilitator, they absolutely can begin to engage for their own and their broader communities’ economic and social gain.

Systems-change facilitators can take many forms. Some are academically rooted, such as MIT’s D-Lab, which uses participatory design to create people-centered interventions. Others, like Root Capital, are working through the lens of agriculture investments to strengthen communities. And some include the most socially-minded impact investors, like Acumen, who sacrifice nearly all financial bottom lines in favor of investing for change. To fully understand both why this work is so challenging – and why it is so critical to furthering the global development agenda – let’s walk through an example of how a facilitator initiates systems change, and what it really takes to move a system in a more positive direction.

 

Into the Nitty-Gritty

S3IDF is a systems-change facilitator which was founded on the conviction that we can create more inclusive social, economic and political systems with widespread impact potential through the strategic use of market forces. We do this by helping poor and underserved entrepreneurs to access the formal financing, equipment and business acumen/networks they need to grow a business that provides their community with basic services or products (energy, water, waste management, etc.).

The nature of this assistance ranges from hands-on business mentorship, to equipment assessment and recommendation, to identification of available government lending schemes, to using philanthropic capital to leverage local private bank capital. But it centers on our ability to hold steady throughout what is often a multi-year process, assisting all stakeholders in overcoming information asymmetries, and building their capacities to continue to successfully engage with one another. By working to facilitate these market-level changes, we begin to catalyze larger-scale systems-level shifts.

 

The Systems-Change Approach in Action

Here’s how this interaction can look from S3IDF’s perspective: In 2015, in conjunction with a local grassroots advocacy organization, we began to seriously engage with the entrepreneurs who run the Dry Waste Collection Centres (DWCCs) of Bangalore, India. These are physical locations set up by the city as collection and sorting points for the municipality’s waste. DWCC operators are typically not very highly educated, and often come from so-called “low castes.” They are constantly harassed, and earn very little, but are exceptionally skilled at collecting and sorting waste.

S3IDF worked with one such DWCC operator, Meena*, who in 2017 required capital to purchase a truck so she could expand her collection radius and thus her business. But she could not secure a loan on her own, and even with S3IDF and our grassroots partner’s assistance in creating a viable business plan, the bank would not finance her. So S3IDF directly lent her the money for the truck, the repayment of which began to build her credit history.

With this loan, Meena became a more efficient collector and sorter, with critical downstream environmental benefits and financial impacts for herself and her team of six employees. But this was only the first step in the effort to nudge the system towards greater inclusion.

While she was repaying her loan, S3IDF and our partners were working with the managers of a national government loan scheme, which is a pool of funding that can be applied for and used as working capital loans. This funding is available to people like Meena, who need flexible capital to continue doing critical work – and who are essentially subsidizing the city in managing its ever-growing waste problem. But it must be channeled through a bank, which will not agree to disburse the loan until it has conducted its own formal know-your-customer assessment on the entrepreneur. This bank assessment is typically very challenging for poor entrepreneurs to navigate, resulting in a systemic barrier to access.

After a series of meetings, another of our partners, a social enterprise, agreed to provide the bank with a “comfort letter,” stating that they would commit to buying the inventory of the waste entrepreneur from the bank in case of default. This essentially monetized Meena’s trash, and provided an additional level of security to the bank. Thanks to this comfort letter, her increased business acumen, her newly-demonstrated repayment history to S3IDF, and the continued support of S3IDF and our grassroots partner, Meena was able to successfully apply for and receive a government-leveraged working capital loan channeled through a national bank.

 

Identifying the Incremental Nudges

This example shows the value of the systems-change approach: The market was not functioning to its fullest potential, because Meena could not receive a formal loan that she critically needed to sustain and improve upon a business that was serving her community and assisting the municipal government. Instead, a facilitator had to assess the barriers and determine the incentives that would allow all of the public and private partners – the grassroots mobilizer, the social enterprise, the government program, the municipality and the national bank – to work together and ultimately enable her to get the loan and strengthen her business.

It’s fairly obvious at this point why this type of work isn’t considered “sexy.” But this example demonstrates how market-level interventions can begin to change larger systems – especially when the approach is duplicated. Our entrepreneur was part of a cohort of nine waste workers who received those channeled working capital loans, the first ever provided through the national bank. And now that this project is ready to expand, the next contingent of entrepreneurs can access this funding more easily, because those in the initial group had the grit to work hard and nudge the system in the right direction.

It likely would have been easier, and certainly quicker, to just have non-profits like S3IDF keep lending to Meena and her colleagues directly. But this would not have addressed the root causes that had forced them to operate outside of the formal economy. By committing to the long-term systems-change methodology, she and future generations of entrepreneurs like her can more readily realize their full economic potential with critical social, political, market and environmental impacts.

 

Using Every Tool to Catalyze Change

We as a global community are focused on addressing the consequences of cracks in our systems – and this is vital work. But as long as those underlying cracks persist, this work will never truly end. It is not a perfect process by any means, but a market-systems approach that nudges our systems towards greater inclusivity and productivity can help fix the cracks that perpetuate poverty. It is one more tool to catalyze social change – one that we cannot afford to overlook.

Even the smallest and poorest entrepreneurs have the capacity, contextual familiarity and skin-in-the-game drive to create a strong business that can more quickly and sustainably provide for themselves and their communities. With greater application of systems-change facilitation, more of these entrepreneurs will have that chance – and the social, economic and environmental benefits could be transformative.

 

*Name changed to protect her privacy

 

Lexi Doolittle is a program specialist at S3IDF, an organisation dedicated to building inclusive market systems to promote equitable social and economic development.

Images courtesy of S3IDF.

 


 

 

Categories
Entrepreneurship
Tags
business development, entrepreneurship, global development, inclusive business, microfinance, small and medium enterprises, social impact