When talking with people inside the “base of the pyramid” (BoP) community, I often hear strong opinions about how BoP ventures should be set up. Some people strongly support registering these ventures as for-profit entities, while others maintain that BoP activities can start out as non-profits and transition into formal businesses later.

There is no one answer, and this is not a straightforward discussion. The legal and financial implications of a for-profit vs. non-profit organization are myriad, and I don’t claim to understand them all by any means.

Thankfully, a new article in the Stanford Social Innovation Review explores the tension between for-profit, non-profit and hybrid structures. The Funding Gap - written by Jeff Hammaoui, Eliot Jamison and Michael Chertok - explores the social enterprise capital market and how the BoP community can address recurring legal, financial and funding issues associated with it. (more…)

Housing portfolio manager Helen Ng is part of the CGAP Working Group on Housing Finance for the Poor, a group of donors and practitioners who share learnings and best practices in the sector. As part of that shared learning, Helen authored a working paper on housing finance and guarantees for base-of-the-pyramid markets, which you can see here.

At Acumen Fund, our focus on metrics has become an integral part of everything we do. Understanding the social impact and financial performance of our investments is critical to informing our portfolio decision-making process and providing support to our investment enterprises. Over the past few years, building on other established approaches, we have worked to develop a methodology for assessing our investments that is practical, understandable and useful to our ongoing work. This concept paper outlines an analytical tool we affectionately refer to as BACO (for best available charitable option) that helps us to understand the social impact and cost-effectiveness of our investment, as compared to other charitable options that address the same issue. It continues to be a work in progress and is not without its limitations, but it does provide a framework for how we think about delivering critical goods and services in health, housing and water to the poor.

Yasmina Zaidman, our Water Portfolio manager, was recently in Delhi during the bombings. Here she shares her immediate reaction and reflections…

Within the last few hours news began streaming in that seven bomb blasts had gone off in Mumbai, killing more than a hundred people and injuring many times that number. As I sit in the Delhi airport waiting for my flight home, the numbers are being updated. Now it’s eight bomb blasts and 146 killed. Some of my fellow travelers are glued to the screen, and trying to get calls through to loved ones or colleagues, while others seem indifferent, as though this is business as usual. As far as I know, this is the biggest bombing since a series of blasts in 1993. I have been reading about the previous attacks in a current bestseller, Maximum City, and somehow as I was reading, the bombs seemed like a part of ancient history, some distant turbulent past. But now the past I was reading about is all too relevant to the present. (more…)

This past May, two members of the Water Portfolio Team visited Kenya, Uganda and South Africa, to explore investment opportunities and learn more about the major water challenges. During the trip, we gained important insights into the context for water and sanitation issues. On the one hand, in the face of significant unmet need, we constantly saw potential for entrepreneurial models. On the other, due to significant dependence on donor funds and systemic challenges such as corruption and lack of infrastructure, we witnessed major hurdles that could easily limit investment opportunities. Through a series of meetings with a cross-section of entrepreneurs, banks, not-for-profits or NGOs, foundations, donor organizations and community-based organizations (CBOs), it became increasingly clear that creative partnerships - between the private, public and citizen sectors - present the richest opportunities to support the growth of sustainable water systems. (more…)

A few weeks ago, I wrote a post entitled “Lacking urgency” that discussed the importance of waking up individuals to tough global issues - and presenting constructive solutions, not simply overwhelming. Roshaneh Zafar, President of Kashf Foundation and an Acumen Fund investee, recently sent out the following letter and study, demonstrating the kind of leadership that we need. This is an important paper - a frank accounting of lessons learned in delivering banking products to the poor. Roshaneh’s is also an important voice for encouraging open and honest knowledge sharing and we’re proud to be working with her.

Dear Colleague,

As you are aware, Kashf is always geared towards enhancing understanding and improving information in the microfinance sector in Pakistan. We believe knowledge sharing and learning from each other and having transparency in the microfinance sector is the first step towards building a strong and vibrant industry in Pakistan.

We have attempted to put together a market analysis report of the province of Punjab both in terms of width of outreach, as in the potential market size, and the current level of market penetration. We were hindered by many factors in this initial assessment - the first thing confounding us was getting the right information on poverty in Pakistan. (more…)

I’ve been privileged to have been invited to the Fortune Brainstorm event this summer. One of the questions participants were asked to answer pertained to the world’s biggest problem and what we fear most. I was intrigued by this and asked the Acumen Fund team to discuss it as part of our weekly meeting.

All of us agreed that the biggest problem - and certainly what we most fear - is the lack of urgency, the numbness in too many leaders and individuals when it comes to recognizing - and doing something - about forces in the world that could lead to significant global instability. The world faces a rising and increasingly treacherous gap between rich and poor, terrorism, and a climate crisis that could literally be the endgame. In our lifetimes, it is not unlikely that we will see more regional wars, global terrorism, natural disasters and large-scale discontent among the have-nots who, even if their absolute situations change favorably, see themselves as left out of the opportunities of a global economy. The question is how to provoke, challenge, wake-up individuals without simply overwhelming? We are learning at Acumen Fund that you can break down massive problems into component parts and tackle parts of problems effectively. (more…)

At the TED conference, Peter Skillman of Palm spoke about the power of creativity and quick prototyping. He has given the following test to various groups, including groups of kindergarten students and also MBAs from top U.S. schools. The group is given spaghetti, string and tape and given the instruction to create a free-standing structure to hold a marshmallow on top. Over and over, the kindergarteners aced the game, and the MBAs scored on the lowest end of the spectrum. Why? The kindergarten kids didn’t worry about rules and hierarchy and procedures but just got down to the work. It was messy, and there were more mistakes but the children got it right. We need more experimentation, more just doing things on a small-scale level quickly, learning from mistakes and doing again to make it better. You don’t want too many interations and want to ensure that the team is working together and not in parallel, but it is a great metaphor for solving tough problems.

Peter ended with these words: watch a child discover a flower. The message is that we need to take a child’s approach and be open to life and its possibilities. Developing the kinds of creative solutions the world needs means keeping imagination alive, learning with new eyes and trying new things.

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.

In India, we are still looking for the initial momentum to build our learning and credibility. The scale of numbers, projects and expectations is higher then in Pakistan, which makes the role we are trying to play much more difficult. But having just returned from India and Pakistan, I am excited by the opportunity and optimistic about the possibilities.

Excitement around China and India were major themes of Davos. Who will be more successful most quickly? What will it mean for the US? For Europe? Does foreign investment have a direct correlation with economic success? These questions were raised in many sessions.

It is time to celebrate the enormous progress of both India and China. At the same time, while Africa is finally on the map of a greater collective conscience, it is still seen in a much more marginal way that smacks of despair rather than celebration. (more…)

Maybe because I was grouped with the “design” participants, another key learning from Davos was this: Innovate, design, and problem-solve based on the voices and concerns of the people you want to reach and serve. Boundaries are blurring, the divides are increasing (based on perception if not reality). So the road to workable solutions lies with starting with who you want to reach and not bringing a top-down solution to their problems. The world is readier than ever for new approaches that are created from the bottom-up. The high number of designers who were exploring such issues is a testament to how far the world has come. We are learning a lot about the poor. We now need to be more effective in building systems that allow them to make their own decisions and choices.

Perceptive reality was a theme that appeared over and over at the WEF meeting. People make decisions in their lives based on their own world view as well as their own sense of fairness. Whether economic disparity is truly increasing or decreasing is much less important than the perception that not only is it increasing more quickly than ever but that some people are being left entirely out of the global economy. This is what matters - whether people believe they have a chance at joining the global marketplace. If they don’t - but see their neighbors or fellow countrymen doing it, then unhappiness sets in. Whether talking about economic disparity or religious tensions, the same holds true, which has enormous implications for getting different religious groups to sit down and talk to one another.

One response must be for our leaders to listen, listen, listen. They don’t always have to change their actions but must need to know what people in their countries are thinking, and then ensuring that they are providing greater chances for access and opportunity. This is what counts.