(This Article was just featured in the NYU Philanthropy Journal.)
When I was 21 I lived in the village of Darou Fana just outside Kaoulak, Senegal. It was my first time living abroad, my first time in Africa, and the first time I looked real inequality in the face. So, when my friend Isatoo asked me to buy her the Chloroquine to treat her two year old child, Fatou, who was suffering from Malaria, I, of course, said yes. Without hesitation, I pulled the 1000 CFA ($2) from my bag walked over to the private village medicine vendor and purchased the medicine.
At the time I didn’t realize that the majority of my career would be framed around debates about the sort of decision I made in that moment. These were debates about what was better: aid verses trade or non-profit verses for-profit.
Frankly I am tired of these debates. They are too ideological and too simplistic.
It is time we break through the false dichotomies between for profit and non-profit and dive into more realistic issues like how to blend two approaches, how one approach can support the other, and where tensions between the two approaches exist. In this vein there are two questions I am interested in exploring in this essay: How do we get smarter about understanding where markets work for the poor? And how do we redesign archaic systems with a combination of philanthropy, private dollars, and public funds?
Where are markets working for the poor?
There is an enormous range of expected return on investment between -100% (charity) and +20% (high market returns). The space in between is one of the most undefined areas in the aid debate and is where we see the highest potential for blended work of both markets and charity. Getting smarter about how the two work together is the most critical question for those of us working in development.
The market has the ability to do three very powerful things. First, the market is an honest indicator of how well an enterprise is serving its customers. When entrepreneurs start a business the first thing they have to do is ask the customer what types of product they want, how do they want it delivered, and at what price? In this way, the very nature of a business values the customer and gives them the dignity and choice to make decisions about their own life style. This feedback mechanism, which increases competition and puts the low income person at the center, is often missing in traditional aid models. Muhammad Yunus knew this when he pioneered the field of microfinance and now in his recent work around the development of social businesses.
Second, the market can make things more efficient. We waste millions of dollars when money passes from donors to contractors to on the ground agencies and finally to the end beneficiary. This happens, for example, when we try to reinvent the wheel on distribution channels, which may already be in place. In countries like India and Nigeria over 60% of low income people seek care in the private sector. This is often because rural medical providers, driven by market demand, find ways to consistently get treatment for illnesses like malaria or diarrhea to the most remote places when the public health system is out of stock or simply non-existent. Yet, very limited aid dollars go toward improving and enhancing those distribution channels. One global model that we can learn from is the Affordable Medicines Facility – Malaria, which was able to increase access to malaria medicine through private delivery channels.
Third, the market forces financial viability decreasing dependence on charitable dollars. The field of impact investing is charting the path to invest in enterprises that can both serve low income clients and also make enough return to grow and sustain the financial health of the enterprise. A great example of this is D.Light Design, which delivers solar light to the poor, and has received millions of impact dollars allowing the company to scale across Africa and Asia. You can see their impact here.
Yet the market is not a panacea. When left to function freely the market does not prioritize the poor. There are circumstances in which charity will always be the solution, as social safety nets are the foundation of any healthy society. One model which completely defies markets, are cash transfers to the poorest of the poor. It is important for us to understand why these may be working and what they can teach us about the power of pure charity, no strings attached.
So, there is an important balance to strike and we have to continue to get smarter about how to integrate market solutions into the mainstream aid conversation as well as use government or foundations subsidies in a smart ways to ensure we create inclusive markets that complement and strengthen the charitable system. There is a fantastic report called from Blueprint to Scale that explores this topic in more detail.
How do we change archaic systems?
“Innovation” is a buzzword in the social sector but often these innovative solutions remain largely irrelevant if they do not figure out ways to change systems and/or scale. So how do we scale innovation and find leverage points that can change large institutions for the better?
At the MDG Health Alliance we have found that using our philanthropic capital to support high quality indigenous talent can be one of the most effective ways to transform systems. For example the placement of high quality management talent inside ministries of health or in state governments often produces more change than injection of large amounts of capital for specific programming. The Born Free Africa initiative did this in partnership with Saving One Million Lives in Nigeria and as a result is on its way to reaching near zero transmission of HIV from mother to child by the end of 2015. There are others focused on development of high quality human capital such as Global Health Corps and Acumen Fund. These programs will not only train individuals they create an interconnected network that can redesign failing systems.
Another key leverage point is high-level engagement of private sector leaders in the social sector. Through examples like Nandan Nilekani’s India’s Unique Identification Initiative, Michael Porters “Shared Value”, the MDG Health Alliance, or the Private Sector Health Alliance of Nigeria leading business people have devoted their capital, networks, time, brainpower, and corporate assets to address social issues. This intersection shakes the system and leads to innovation. Nilekani’s ID initiative has already reached over 500 million people and the Private Sector health Alliance of Nigeria has committed to saving nearly 400,000 lives by the end of 2015.
A final idea is to encourage organizations to develop their model with institutional partnerships in mind from the outset. A strong example of this is 1298 Ambulances. From the beginning the founders were in conversation with the government about how their model might work with or complement the current infrastructure. With impact investing capital they slowly scaled their model to around 50 ambulances. But it was not until the government of India awarded them contracts to scale across multiple states, leveraging the government’s capital and infrastructure, were they truly able to scale and increase their fleet 10 fold. They had developed an innovative model but the real change came when they integrated it back into the traditional system redesigning how the government delivers emergency care.
Finally, and most importantly, all of our efforts must put people like Isatoo at the center. This should remain our most important goal. I am reminded of my late mentor C.K Prahalad who said “when you work with the poor go with humility because they know more about the world then you could ever imagine”.