People and profits

The singer Peter Gabriel, on stage at the Skoll World Forum in Oxford last week, observed that 10 years ago, he didn’t know what a social entrepreneur was. Now, after being involved with the forum in the years in between, he does.  

Perhaps it takes more than one encounter, but after three days at the 8th Skoll World Forum, I am still not sure that I can define it precisely. There are clearly qualities that unite many of the delegates: among them are an ambition for change, a sensitivity to injustice, a willingness to take initiatives and to challenge overwhelming odds and an ability to apply new approaches to entrenched problems. I might add a lack of interest in conventional career paths and the fact most are not primarily motivated by money.

That makes them a dynamic and interesting group of people, but does not quite define what they do. As far as a single format of social enterprise is concerned, the picture gets a little fuzzier. Some of the delegates worked in charity models, others in for-profits; still others in notionally sustainable enterprises that might or might not eventually make enough to keep them going. Many relied on philanthropic investment since conventional investors were unwilling to help. One delegate told me that when the bank heard that profit was not the main objective of his enterprise, they told him that they would not give him a loan, regardless of any guarantees of repayment.

Thus far, then, social enterprise looks more like a spectrum than a neat category. At one end, it could be read like conventional business operating in an unusual part of the market — finding ways to cater to people too poor to be of interest to established business. The key example of this is the micro-credit movement, described last week as the poster child of social entrepreneurship, but now under increasingly critical scrutiny. It began as a social movement, offering small loans to people who had no access to financial services, but once the market was established, it became attractive to other, less scrupulous players.

Apart from some recent reports of usurious interest rates and sky-high executive rewards, the movement now has other troubles. Its hero, the founder of the Grameen Bank, Nobel prize winner Mohammed Yunus, is under attack by the government of Bangladesh, perhaps a manifestation of the fact that making major change in the world can provoke a backlash from the established powers.

Even within the micro-credit sector, the fact that there are very different models was illustrated in the forum’s opening plenary discussion on micro-credit, moderated by Jonathan Lewis, himself a leading practitioner, with Alvaro Rodriguez, of the Mexican Compartamos Banco and Roshaneh Zafar, managing director of the Kashf Foundation.

The degree to which the sector has come under scrutiny was illustrated by the fact, they said, that out of 67 poverty suicides in India last year, four were due to excessive debt through micro-finance, but those four attracted all the media attention. Despite what Jonathan Lewis called this negative noise, they defended the sector, while admitting that its rapid growth had made it vulnerable to criticism. Roshaneh Zafar felt that the movement was exposed because it had over-promised: “Micro finance reduces vulnerability,” she said, “but it doesn’t cure poverty.”  

Beyond that, though, there were other dilemmas in the ethical challenges of financing social change: Jonathan Lewis admitted that the sector was selling two messages — that the market would work, and that it could stay on its mission of social change. Could it, he asked, really serve two masters? The answers revealed two very different approaches.

Roshaneh Zafar argued that the primary mission was to transform lives, which could take 10 loans over 10 years, and required a full range of services including insurance, savings and credit that a not for profit could not provide. Now was the simple provision of financial services to the poor enough: her clients also needed other kinds of support and advice.

Alvaro Rodriguez argued that it was possible both to maximise returns and to have positive impact, and that if they wanted to serve the maximum numbers, rapid growth was desirable and best engine for that was profit. Philanthropy was important, he said, because commercial lending does not work everywhere and operations in poorer countries like Bangladesh would continue to rely on donations. But Mexico, where Compartamos operates, is perceived as too rich a country to rely on donations, despite having a large number of poor people. To meet the needs of poor Mexicans, the capital markets were essential. How then, asked Jonathan Lewis, did this differ from functioning like a Citigroup for the poor? There was no clear answer. There was one principle, however, on which all could agree, and which perhaps does draw a clear line between the microcredit sector and many large scale financial institutions: that markets should support, rather than beggar societies.