Archive for the ‘For-Profit/Non-Profit’ Category

Microfinance is the provision of financial products and services to economically active poor people who, for a variety of cultural, social, gender-related, and other reasons, are excluded from the mainstream financial sector, especially in the developing world. The microfinance sector has grown significantly over the past few decades and, in 2006, Muhammad Yunus, considered by many to be the father of modern microfinance, was awarded the Nobel Peace Prize for his pioneering work in fostering access to finance as a path toward more peaceful relations.

At first glance, it may seem that microfinance and the sharing economy have little in common. Microfinance focuses on poor people in the developing world. Women represent the vast majority of microfinance clients, and many loans are for working capital assets such as livestock and small shop supplies. Ironically, many microfinance beneficiaries share out of necessity – as they have done for generations – though they wouldn’t necessarily think of building a business around it.

However, this first impression is incomplete. Further investigation reveals a multitude of similarities and – perhaps most importantly – key lessons that the sharing economy and collaborative consumption could learn from microfinance:

· Empowerment: At their core, both microfinance and collaborative consumption enable and promote empowerment of individuals. Responsible access to finance unleashes a positive chain of ripple effects: livelihood, income generation, and a brighter economic future for clients, their families, and communities.

Collaborative consumption achieves similar ends. As Rachel Botsman says, “…my core driver is how empowers people. It empowers people to tap into skills and talent that they have but haven’t found opportunities to make money from before. It empowers people to be in control of their jobs and their lives. It empowers people to make new kinds of connections that are often quite tricky to make.” Technology has democratized, economized, and facilitated the ways in which ever-increasing numbers of people can transact with one another and create new value.

· Trust, Reputation, & Social Collateral: Microfinance and sharing-based businesses depend on these essential characteristics for their very survival, in addition to their popularity. No rational person would make an uncollateralized loan to a poor person she doesn’t trust. In microfinance, your reputation substitutes for credit history (because the latter doesn’t exist). The group lending model of microfinance, in which each member of a group is responsible for ensuring that all members repay their loans, is premised on social collateral: You’re banking on an individual’s trustworthiness within society, rather than her material assets, as the best indicator of whether she can and will repay a loan. As a result, social standing among peers – especially within tight-knit communities – is built over time and reigns supreme.

Similarly, in the sharing economy this kind of social fabric and “trust barometer” can be created thanks to new technologies. Engaging in collaborative consumption – and getting used to it – lowers the trust barrier over time. Botsman summarizes it well: “The first few interactions people go through typically involve quite a few exchanges. Once they figure out that most people are trustworthy and that the idea works, the amount of trust features they use for future interactions declines.” (more…)

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This past week has been incredible. First BarCamp Africa at the Googleplex, then the inaugural SoCap (social capital) conference in SF. My mind is still spinning with ideas. Amazing and inspiring people, tremendous opportunities, so much to be encouraged and enthused about…

I moderated a BarCamp panel on social, cultural, political and development issues in Africa. A fabulous diversity of perspectives — from documentary filmmaker Amie Williams‘ experiences of the Kenyan political violence through the eyes of a teenage girl, to Joseph Nganga’s efforts at alternative energy and rural needs thanks to companies like Vipani, to Josh Goldstein‘s work with Google regarding internet policy and the specific needs of Africa (and a Fletcherite like me!), to Ken Banks‘ initiative to deploy technology to community health workers and hospitals in rural areas, to Kjerstin Erikson’s organization FORGE that works with post-conflict refugees in Zambia and beyond. Other highlight breakout sessions included an African music and dance journey, brainstorming about the likes of the XPrize, and taking an extraordinary Google Maps adventure above, below and around the continent.

Less than 48 hours later, I found myself at SoCap. Along with some 700+ other people — double the original capacity, from what I understand — packing into Fort Mason and eager to meet others interested in going “beyond microfinance” and pushing the double bottom line and social investment envelopes further.

There were more than 50 breakout sessions organized by the SoCap team, plus an unconference day facilitated by Jerry Michalski. Particularly noteworthy organized sessions included New Spin on Old World Development, Design in the Developing World, Venture Philanthropy and International Government Investment, Sustainable Energy Investments for the BOP, New African Capital and Scaling US Social Enterprise (that’s only a small fraction of what was on tap). The day was capped off by an engaging, challenging Oxford-style debate regarding whether profit maximization is the best way to reach and assist the poor. I lost count of how many times I heard the word “philanthrocapitalism”…

I must say — and not only because of my connection to Jerry 🙂 — that the unconference day was the best of all. Not only because it allowed participants to own and direct the discussions themselves, but also because this format finally provided “something different” at this type of conference. A forum to connect with others on one’s own terms and with one’s own thoughts in the open. A chance to let discussions take tangents, which 99% of the time lead to even better things. An opportunity around every corner to be surprised, challenged and reminded about the myriad avenues to build community.

A sampling of the unconference sessions I attended (can we say, custom-tailored to what’s most relevant to me these days?!):

  • “Legal / structuring 101” for social investing (including VC folks, entrepreneurs and a few lawyers for good measure)
  • Social impact metrics and measurement parameters
  • Franchising social enterprises (including e.g., microfranchising)
  • Fortune 500 companies: Can they innovate via social investment?
  • Social investment in Africa
  • Alternative exits, with an emphasis on legacy

I’m looking forward to staying in touch with so many people from SoCap (big question: might we work together someday?) and look forward to SoCap 2009 already. As for BarCamp Africa, I’m not sure if it’s an annual event but definitely think it should be — and its relevance will be felt again quite soon, as exactly 3 weeks from today I’ll be Ethiopia-bound!

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I recently became an adviser to Swayam, a new socially-minded investment platform that is slated to enable individuals to invest in the higher education — and hence futures — of entrepreneurs who would otherwise not be able to afford their degrees (or would otherwise be burdened with heavy loan obligations).  I originally met the Swayam team while serving as a judge at the BASES social enterprise competition at Stanford earlier this spring, where Swayam was one of the top finalist teams.  I was attracted to the Swayam proposal for several reasons, not least the synergies and similarities it has to certain models of microfinance investment.

The Swayam initiative is a work in progress, and a pilot program with graduate students from Stanford is underway.  The Swayam team is actively seeking more Swayam Fellows (students) and Swayam Angels (investors).  More information is available on the Swayam site, and definitely check out the Swayam blog as well.  I believe the potential impact, benefits and efficiencies of Swayam could be huge — in the United States and around the world, and for students, professionals, investors and universities alike…

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To the extent that new legal structures can be exciting — which is a long shot for many, I admit — there is one on the horizon.  The L3C (Low-Profit Limited Liability Company) officially came into being in Vermont last month.  It has national applicability (thanks to the fact that it is essentially a modified version of the LLC which exists in all 50 states) and provides enormous potential to facilitate socially beneficial and “double bottom line” investing by commercial investors and philanthropic entities alike.  Among other advantages, it flips the traditional investment model on its head by enabling (1) foundations and donor advised funds the ability to meet Program Related Investment (PRI) requirements by taking an equity position in the L3C (high-risk + low-return), with the possibility of receiving financial returns in the future, and (2) market investors increased opportunities to enter the social investment arena due to such equity cushion (low-risk + high-return).

The L3C is a fascinating model and appears to be broadly workable.  The more I learn about it, the more I like it…  Perhaps a longer post about it in the future.  For now the best L3C summary can be found here.

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