This past week I was in Lahore, Pakistan visiting LUMS, the country’s leading graduate business school. I had meetings with the superintendent and several professors before making a presentation to students on Acumen Fund’s work. Approximately 50 filled the auditorium, and no one left before the end of our 90-minute presentation and Q&A. I usually try to talk about why and how we do what we do, rather then talk about organizations. It was exciting to see how enthusiastic these 24- to 28-year-old Pakistanis were about the idea of investing in businesses whose customers are mostly poor. We fielded question after question about these resource-poor organizations and how Acumen Fund tries to help them: How do you keep the strategic plans simple? How capable are the managers, and how do you help them? How involved do you get in running companies? What do you do when there is a great idea but no leader? Are there good ideas in other countries that we should try in Pakistan?
What is most interesting to me personally is how similar these questions and conversations are with graduate students of the same age in the U.S., or those in India. They all get excited by how hard this work is and seem to really understand. Also, they seem interested in working with us because they are interested in the problems and our solutions, and are eager to do this in any country, not necessarily their own. The more ambitiously we set the goals, the better the reaction. It says a lot about this emerging generation of leaders.
The challenge of structuring appropriate Acumen Fund housing investments is that they do not - cannot - look like traditional real estate development projects. The population we target does not have the disposable income needed for 15-20% equity down payments, and often the full family’s monthly income flow is insufficient to carry a very large mortgage. This means that we are looking for innovative financial structures, or small-scale projects that have primarily demonstration value. These features translate to higher lending risk, which causes most property lenders to step back from commitments. Acumen Fund’s strength in bringing commercial lenders to the table is that we have a higher threshold for risk then other institutions, and thus are in a position to leverage their involvement by bearing the first loss. We are demonstrating this leverage in launching a commercial mortgage lending program, as well as in lending to squatter property purchases in Pakistan, where our Housing portfolio is varied and growing after four years of investing.