Innovations In Emerging Markets

For-Benefit Corporations -- Hot New Business Model or Fad?

The most downloaded New York Times business article recently was "Make Money, Save the World". Yet another sign of one of the hottest trends in business today: corporations doing well while doing good. It's not only here to stay; it's now a full-fledged business model.

Altrushare Securities, the article says, is a firm majority-owned by two charities. So the question is: "Is it a for-profit business or a nonprofit fund-raising machine?" The answer: both. To coin the expression coined in the article: it's a for-benefit corporation.

The term may be brand new, but the concept has been around for a while. Since its creation over half a century ago, IFC has been dedicated to the notion that a corporation can do good in emerging markets through investments in private enterprise. By helping companies of all sizes access opportunities in emerging markets, IFC is furthering development impact on the ground in those countries.

Just one of the earliest examples of how companies are "making money, saving the world".

For more on IFC's efforts to create opportunities in emerging markets, click here

Emerging Market Philanthropreneurs Alive and Well, and Wanted!

We've gotten a lot of traffic and interest in our posting on Philanthropreneurs.

For more on such individuals and ventures in emerging markets, we'd like to pass on the recommendation of Derek Newberry of the World Resources Institute. He alerted us to the existence of a solid list of examples on the WRI blog. Check out their New Ventures program . Thanks Derek -- very helpful referral.

Another comment on our blog is also worth picking up on. A Colombian NGO writes that "the challenges for NGOs is access to financing beyond donations and grants," and asks: "How can we have access to social investors that are looking for a social return and not necessarily an economic return?".

Any social investor out there who'd like to tackle this question?

Social Capitalists Gain Recognition

The terms being coined to describe the growing phenomena of entrepreneurs combining revenue-generation with non-profit work within their communities and societies are multiplying. A week ago, Philanthropreneur was the "mot du jour'. The New York Times used it in a huge supplement on Giving (see our earlier posting on Philanthropreneurs).

This week, Social Capitalists are the focus of a nextbillion.net blog posting. Social Capitalists are "non-profits that are generating both financial profit and social benefit". Accion International, an NGO that specializes in training banks on how to offer microfinance services, is the winner this year.

New terms for evolving practices are exciting on several counts. A- they confer legitimacy. B- they evoke constancy (as in: not a whim or a passing fad). So where there's a term, there's a way -- one that is potentially here to stay, one that is so part of a trend, it's gone beyond and established itself as a phenom that requires a term to describe it. Social Capitalists and Philanthropreneurs are here to stay!

Philanthropreneurs and Companies Doing Good while Doing Well

The line between philanthropy and business is blurring, says a New York Times supplement on Giving this week. A new generation of philanthropists has stepped forward, for the most part young billionaires who have reaped the benefits of capitalism and believe that it can be applied in the service of charity. They are “philanthropreneurs,” driven to do good and have their profit, too.

Meanwhile, in emerging markets, companies are also applying the "part philanthropy/part corporate strategy" business model. The result: they are developing markets AND contributing to bettering the lives of millions of people. Intel's World Ahead program in China is one example. The tech company has announced plans to spend $1 billion over five years to improve Internet access in developing countries and train teachers on how to use technology.

The long-term pay-off for companies such as Intel is pretty clear. For the governments of countries like India and China, where programs by Microsoft, Intel, and other hi-tech companies are underway, "the technology projects offer ways to close gaps with wealthier cities -- providing more-remote and less-educated residents access to information they wouldn't have otherwise to improve their own and their children's fortunes. Both countries have ambitious plans to use technology to maintain their rapid economic development."

For those of us at IFC -- an international financial institution with a development mission-- the convergence of emerging market development goals with 'philanthropreneurshipism' means at least a triple pay-off, where everyone can win.

Pushing the Boundaries of Microcredit and Peace to Innovations 'Beyond Credit'

When the world’s first microfinance institution, Bangladesh’s Grameen Bank, and its founder, Muhammad Yunus, were awarded the Nobel Peace Prize, it opened up new directions for the field of microcredit, BusinessWeek reports. The honor both raises awareness of innovative small-loan financing for the poor and gives banks and corporations incentive for creative new types of investment in the sector.

Already, multinational insurer AIG has partnered with global microfinance firm ACCION International in a $5.25 million deal to develop new financial products such as insurance, financial literacy, remittances, and other possibilities. AIG’s Ned Cloonan told BusinessWeek,

"We're calling the investment 'beyond credit' because we feel that the industry is ready for the introduction of additional products and services that go beyond straight lending, and we want to play a role in developing that capacity."

Other big players such as Citigroup have already entered the field, and Germany’s Deutsche Bank has an $80 million fund that invests institutional and pension funds in microfinance.

Meanwhile, the relief within the development committee about the Nobel Peace Prize's de facti establishment of microcredit as a viable financing mode with real potential to combat poverty is palpable. See the World Bank Group-affiliated Consultative Group to Assist the Poorest's take. Also, see the related post by our friends at the NextBillion.net blog.

Verifying a Company's Contributions to Society

"Trust but verify" is as much a truism in the sustainable development world today as it was two decades ago in the political realm. Klaus Leisinger, president of Switzerland's Novartis Foundation for Sustainable Development talks about the challenges inherent in verifying a company's contributions to society in a recent McKinsey Quarterly interview. The Swiss pharmaceutical company has worked extensively among Africa's rural poor to introduce private health insurance.

Examples of the commitment of business to society are growing, although they have outpaced the ability to measure. The Novartis Foundation's fight against global poverty and disease --leprosy in particular-- is one example that stands out.

A Profile in Social Responsibility: India's Tata Group in Africa

From its beginnings in Zambia in 1977 to its current base of operations in South Africa, the narrative of India's Tata Africa Holdings "incorporates the textbook ingredients of how overseas businesses should be seeded," India's Frontline magazine says.

Aside from a successful business strategy (revenues estimated at $200 million in 2005-2006), the main ingredients of the Tata Group's success in Africa, the article says, are the company's attention to integrating into the local community and initiating programs that reinforce its image as a responsible corporate citizen. The article goes on to describe some of the company's initiatives in Africa:

"[It] has sponsored young South Africans to train in jewelry design at Tata Titan Industries, the watch and jewelry making company from the Tata stable. Then, there will be an extension of the adult literacy program that Tata Consultancy Services first pioneered in India to Africa and its local languages in collaboration with World Development Bank Trust which is involved in empowering women in South Africa. It has also come out with a scheme for recognising outstanding college students with the award of Tata scholarships. "

Financiers with a Mission: Cambodia's ACLEDA Microfinance Bank

Basic financial services in strife-ridden Cambodia were virtually nonexistent less than 15 years ago. That means that many of its people, let alone its poorest, could forget about a crack at a livelihood. Today, nearly 400,000 of the country's poorest have access to credit through a system of 17 banks (foreign and domestic, private and government-owned), and a globally recognized microfinance bank, the Association of Cambodian Local Economic Development Agencies (ACLEDA) Bank.

With about 3 billion people around the world seeking access to basic financial services, the process of getting credit into the hands of those who need it is just beginning. A recent book by the Consultative Group to Assist the Poor (a global resource center for microfinance advisory services) looks at the record of microfinancing in the past 10 years .

"Access for All describes where the microfinance field finds itself in 2006, as well as the opportunities and challenges ahead. The book examines all levels of the financial system and answers key questions about clients of microfinance - Who are they? What financial services do they want? What is the impact of financial services on their lives? "

The Cambodian experience is one of many around the globe, including in Africa, of what works. Microfinancing is a tangible reflection of where development intersects with finance -- a mission with a bottom-line attached to it: putting a chance at a livelihood into the hands of those who desperately want one.

ACLEDA is IFC's 2005 Client Leadership Award winner. 

Emerging Market Firms as Socially Responsible as Global Peers

There are no significant differences between the level of corporate responsibility exhibited by companies in emerging markets and companies operating in OECD member countries, according to a 2005 OECD study. This myth-busting conclusion of the fact-finding study "Corporate Responsibility Practices of Emerging Market Companies" came as a surprise, even to its authors.

Another finding is that the business case for corporate responsibility --such as attracting  employees, improving product market positioning, and protecting reputation -- is equally compelling for emerging market companies.

Finding no. 3: Emerging market companies are the ones leading the way in corporate responsibility. South African firms are singled out for their record in this area in more sectors and across more dimensions than their OECD peers. WRI's NextBillion.net and IFC's Innovations in Emerging Markets blogs have both showcased the leadership of Egypt's Sekem company in this area.

This OECD study deserves revisiting, despite its 2005 publication date. It provides a still rare snapshot of corporate responsibility practices by emerging markets firms that are steadily working to expand their share of global investment flows.   

Business Cannot Afford to Ignore Social Issues

Business leaders today have a strategic interest in getting involved in the sociopolitical debate, notes the McKinsey Quarterly in its current issue. "When Social Issues Become Strategy" says the case for incorporating an awareness of social and political trends into corporate strategy has become overwhelming and underlines the role of the CEO in pushing for such awareness. 

"For stakeholders, companies are, in many ways, already agents of social change and must become much more deliberate in understanding the way they affect society. Businesses that .... proactively understand and engage with social issues will benefit most. They will be better able to shape the social contract and to identify ways of creating value from the opportunities and risks arising from sociopolitical issues."