This summer I worked with one of the Acumen Fund’s investees Ansaar Management Company (AMC) based in Lahore, Pakistan. AMC is a for-profit company run by former Acumen Fellow Jawad Aslam, which provides affordable housing and a healthy community for low-income families. Unlike conventional models, AMC is selling homes with a clear legal title and a social infrastructure of water, sanitation, roads, and schools.
One of my tasks was to survey the commercial investment landscape and develop recommendations to help scale AMC’s model. With for-profit social enterprises like AMC, it’s natural to look at attracting commercial investors to help expand business. Since I used to work in real estate investment, I quickly reached out to former colleagues to help come up with ideas based on best practices in the industry. But, before long, I began to ask myself: “Why am I going back and conducting business with the same greedy capital markets which I left behind?” I became interested in the concept of Patient Capital because I thought it would challenge the norms in the present financial markets, which I had begun to question. However, upon hearing the word “scale,” I immediately began to think about the amount of capital necessary to invest into more housing development projects. How could we attract commercial investors? What kind of legal structure would promise liquidity for our investors? What is the best way to maximize financial efficiency?
But, were these the right questions to think about how to scale social impact? Is Patient Capital only patient until the enterprise is ready for traditional capital markets?
If the ultimate goal is to provide affordable homes to as many of Pakistan’s poor as possible, scale through the attraction of commercial capital does not need to be the focus of AMC’s organizational growth. Instead, when AMC proves that it’s model is profitable, it will provide other existing or potential housing developers incentive to replicate or adopt a similar model. The followers can be non-profit organizations or even the government, and there should be open space for creative collaboration among these different players.
However, scale cannot be just about seeing replication of AMC’s model because the problem is more often about the lack of systems and infrastructure. For instance, influencing public policy is a powerful way to scale impacts. AMC is now working with local government officials to change regulations on the planning of housing projects to make them more suitable to affordable homes. These changes could benefit not only AMC, but the entire market for affordable housing. There is also a more fundamental challenge to scaling the model. When Jawad worked for Saiban, the not-for-profit inspiration for AMC, it took him 18 months to obtain the proper approvals on the development plan because he refused to pay bribes. Fighting to rid of corruption would also result in a positive ripple effect across the housing development sector in this country.
If we can think of Patient Capital as not just a grace period for social entrepreneurs before tapping the “impatient” commercial markets, but instead as a new model of investment that is challenging the current systems of capitalism, scale could be defined and understood in a broader context. Attracting commercial investors is a fine pursuit. But we need to think outside the box and experiment with new ways of investment rather than simply adopting and accommodating the existing conduct of the commercial sector. This is the powers I see with Patient Capital. If we can move beyond thinking solely in terms of financial return, we can begin to explore innovative models that go beyond the simplistic dualism of for-profit vs. not-for-profit and private vs. public. Working for a social enterprise start-up in Pakistan has helped me reflect on my own mindset based on my private sector experience, and to think more deeply about what scale really means.
Nanako Kudo was a 2010 Summer Associate working for Acumen Fund investee Ansaar Management Company (AMC) in Lahore, Pakistan. Nanako is pursuing a Master’s degree in International Development and Social Change at Clark University.
Tags: AMC, housing, Jawad Aslam, Pakistan, Patient capital, Saiban, Summer Spotlight
Nanako,
You raise a point that it is virtually ignored in our field: Patient for what? Does that mean you will wait longer for the same returns? Why is that any better?
I wrote about this last month (http://bit.ly/clKj4D). In the end, we have to create liquidity for investors to reduce their risk (and cost of capital)… or we are just asking for charity. Scale is not just an issue for individual social entrepreneurs, but for the entire industry. Social exchanges might be the answer, but they are a long ways off. In the meantime, I think the holding company model can help.