September Issue 2009
Interview: Jacqueline Novogratz
“Long-term change can be frustrating, but I am ever hopeful” — Jacqueline Novogratz
Q: How has Acumen Fund changed the way social entrepreneurship is viewed in Pakistan?
A: Acumen is the first organisation of its type in Pakistan, providing the alternative to looking for grants and government funding by providing patient capital that allows enterprises to scale. As our portfolio grows in Pakistan, we have witnessed a growing awareness among the local community about this new approach to working and investing in social space. It is very exciting to see that there is recognition of what we are trying to do as an innovative organisation and I see the momentum around this building up slowly.
The proof is in our portfolio of investments in Pakistan that have been consistently providing critical goods and services to lower-income communities of Pakistan, such as irrigation technology for small farmers and legal title and shelter for those living in katchi abadis.
When I talk to potential partners of Acumen Fund in Pakistan, even among the elder community, there is a desire to see newer ways of tackling poverty and real interest in a model that allows us to not only hold social organisations accountable for the money they are given, but also helps them graduate from dependence on government funding or foreign aid.
I am noticing more and more Pakistani students and young professionals looking to get involved in the social sector at a professional level and seeking ways to integrate their business experience and education with their social drive. We often speak at business schools like LUMS, and currently Acumen Fund Pakistan is teaming up with TiE (The Indus Entrepreneurs) in Lahore who approached us to co-host their annual conference which, this year, is centred on the theme of social entrepreneurship. Through forums like this we have been raising the profile of the social entrepreneurship space by creating opportunities where young professionals and entrepreneurs can learn more from experienced practitioners in the field.
Q: What are the criteria for selecting such entrepreneurs?
A: Acumen comes into contact with potential investees through its vast network of partners and current investees. In Acumen’s experience, the best leads often come through field visits, and with the presence of Acumen’s country offices, the pipeline of potential investments is growing significantly.
Our team undertakes a thorough due diligence process on any potential investment. Obviously, enterprises must first fit within the guidelines for our portfolios. They must be working to deliver goods and services to low-income consumers along one of our four issue areas (health, housing, water, energy) and in one of our focus geographies (Pakistan, India, East/South Africa). Acumen’s primary investment criteria include demonstrating the potential to achieve significant social impact, financial sustainability and scale, while having a strong and experienced management team with the skills and will to grow a sustainable enterprise in the markets we serve.
Q: Can you elaborate on the future projects that Acumen Fund plans on investing in Pakistan?
A: This is a very exciting time in Pakistan with a lot of opportunities and innovations in the social enterprise space. In particular there are two potential organisations on our radar, one of which I had the privilege of visiting during my trip. One organisation works with agri-financing in Bahawalpur, where there is tremendous potential to change the lives of smallholder farmers. Historically, farmers there have been restricted by their small and seasonal incomes and hence are dependent on artis or middlemen for inputs such as fertiliser and seeds. They often receive poor quality inputs through this channel and are charged 20-30% interest per month to be repaid at the end of the harvest. Collateral is always required and the inputs typically arrive too late for the farmers to maximise their productivity. After spending time in the field and speaking to the farmers, we learnt that what they want and need are loans that can be accessed before the season starts and a way of accessing the banks without having to spend entire days going back and forth to the cities. This innovative organisation is charging them 26% effective annual interest and has made significant inroads in seeing enormous increases in farmers’ productivity.
The other organisation with which we may potentially collaborate provides quality products and services in the healthcare and pharmaceutical sector and is looking to go down- market to serve lower income clients.
Q: Tell us about your experience of working with Kashf Foundation and Saiban. Is the Acumen Fund still working with these organisations?
A: We invested in Kashf for the first time in 2002, when it had about 12,000 clients. We invested in Kashf again in 2007, in a pilot home-improvement loan programme and later, again in 2008 to help them create a larger holding company, Kashf Holding Co., that will provide a suite of financial services (micro-loans, micro-savings, home-improvement loans, micro-insurance) to underserved markets. At each stage of involvement, we have seen Kashf grow; from 12,000 clients in 2002, to 100,000 clients in 2007, to 310,000 clients in 2009 — theirs is truly a story of scale and growth. We have had a very long-term relationship with Kashf and continue to work with them as they revolutionise the microfinance industry in Pakistan. Besides providing crucial access to finance for low income families, we have seen Kashf play a pivotal role in changing the way women are empowering themselves through taking control of their family’s finances.
Similarly, Saiban has been revolutionary in the way it has addressed the problem faced by low-income urban squatters in Pakistan and we at Acumen have had the privilege of learning with them. Through diligent “action research,” Saiban CEO Tasneem Siddiqui, and his team, have refined the incremental development approach that straddles the line between formalising the informal sector and inducting the public sector in their methodology in order to provide legal titled land to low-income households in urban Pakistan who previously found themselves excluded by the private and public sectors. Acumen has been instrumental in transferring Saiban’s success with Khuda ki Basti 3 in Karachi to Khuda ki Basti 4 in Lahore, where the model is being replicated. We are so proud of former Acumen Fellow, Jawad Aslam, who was placed with Saiban during his fellowship in 2008 and, subsequently, decided to dedicate his career to low-income housing in Pakistan. Jawad is now the CEO of Ansaar Management Company (AMC), a for-profit, commercial version of Saiban that looks to scale Saiban’s incremental housing model and prove that low-cost housing is a lucrative social business in Pakistan.
Q: How does Acumen Fund decide which areas to invest in?
A: The issue areas on which our portfolios focus (health, housing, water, energy and now agriculture) are based on where we historically have been most effective in identifying investments and entrepreneurs. Acumen’s focus right now is on creating the largest amount of impact with its capital. This entails concentrating on the investments it has made thus far and building up capabilities and resources in the countries and sectors where we work.
Q: How do you feel about the progress Acumen Fund has made so far? Which other countries does the Fund plan on working in?
A: As Acumen Fund grows, we may consider expanding into other regions. The decision to expand will be weighed carefully against identifying a committed and capable local social entrepreneur to build a country office, the presence of a group of advisors and supporters who would help us get started, a pipeline of potential investing opportunities and the significant financial investment required to build a strong local infrastructure.
Q: Why does the traditional form of aid (charity and handouts) not work?
A: There are times when “traditional” aid is absolutely effective and needed. However, traditional charity often meets immediate needs, but it often fails to enable people to solve their own problems over the long term. That said, our model of patient capital relies on philanthropic capital in order to provide the flexibility needed to support our investee enterprises and to take on the risk/return profile they present. The issue isn’t about aid itself, but how that aid is deployed. Market-based approaches have the potential to grow and continue even when charitable dollars run out, and such solutions need to be part of how problems of poverty are addressed.
Q: Philanthropic institutions, such as the Gates Foundation, work in the traditional way of handing out charity. How effective are such organisations?
A: There is a broad spectrum of approaches in addressing problems of poverty among philanthropic institutions. Indeed, we are huge fans of the Gates Foundation, which is a real leader and supporter of innovation in this sector.
Q: How was your experience of working with the World Bank and the Rockefeller Foundation?
A: All of my work experiences, in both the private and public sectors, gave me the foundation of skills as well as the perspective that led to the creation of Acumen Fund. In the late ’90s, three trends emerged: the communications revolution that connected people across the globe; a proliferation of wealthy individuals looking for greater results and engagement from their philanthropy; and more social entrepreneurs using business approaches to address tough problems. I was then at the Rockefeller Foundation and interested in the next frontier of philanthropy. So a small group of committed philanthropists and I worked together to launch a new model based on venture capital and focused on solving tough problems of global poverty. (And in fact, the Rockefeller Foundation was instrumental in Acumen Fund’s founding as an early supporter.) Since our inception in 2001, the model has been revised based on our learning about the world and the work.
Q: What do you believe is the biggest obstacle in ending global poverty?
A: I think the biggest obstacle is the ongoing imposition of top-down solutions, however well-meaning, rather than approaches built from an understanding of what the poor actually want and need.
Listening is a core value of Acumen Fund — one that’s critical at every level at which we work and shared by every member of the organisation, but especially so when working with our investment enterprises and the customers they serve. The entrepreneurs with whom we work share this value — and their business success requires that the products they provide are not just critical and affordable, but responsive to the needs and wants of their low-income customers. Our most successful entrepreneurs listen constantly to the needs and the nuanced preferences of their customers and respond with solutions designed around the customers’ behaviours and desires.
From our investments, we gain insights not only about the poor as consumers but about where the market fails entirely. We listen to the poor to understand who they are — how they make decisions and what they prefer when it comes to basics like safe water, healthcare and alternative energy. We regard low-income individuals as customers (even if they have no ability to pay) rather than as passive recipients of charity. In the end, it’s about allowing people to make their own decisions and solve their own problems.
I’ve learned that people usually tell you the truth if you listen hard enough. If you don’t, you’ll hear what you want to hear. I’ve learned that there is no currency like trust and no catalyst like hope. There is nothing worse for building relationships than pandering on the one hand, and preaching on the other. And the most important quality we must all strengthen in ourselves is that of deep human empathy, for that will provide the most hope of all — and the foundation for our collective survival.
Q: Do you get frustrated or lose hope when every little progress made gets wiped out due to economic or social instability?
A: I don’t think the second part of that statement is necessarily true. We are seeing real change and real success with a number of our investments, which demonstrate how patient capital can create scaleable, sustainable models for delivering critical goods and services to poor consumers. Yes, long-term change can be frustrating, but I am ever-hopeful.
Q: A large portion of your book is about your experience in Rwanda, before and after the genocide. How has your experience in this region given you perspective on how to cope with such situations?
A: In many ways, the book is a love letter of sorts to the women with whom I built Dutirimbere, the microfinance bank in Rwanda. My experience with them was such a contrast to their experiences during and after the genocide — indeed, they played out every conceivable role in that tragedy, from perpetrator to victim to bystander. In fact, one of the women, Agnes, the first executive director of the microfinance bank, was recently convicted in Rwanda for crimes of genocide and sentenced to life in prison. I started writing the book as a way of sharing their stories, and to focus on this journey as part of the larger one, starting as a young banker on Wall Street and ending with Acumen Fund as a model that can help the world think — and act — more effectively in building a more inclusive and creative global economy, one that enables all people to pursue their own sense of purpose.
The Blue Sweater chronicles my journey to understand global poverty and find new ways of tackling it. Along the way, I witnessed how traditional charity often fails, but how a new form of philanthropic investing called “patient capital” can help make people self-sufficient and change millions of lives. What I learned from those experiences formed the basis and philosophy on which I founded Acumen Fund.
Q: Do you feel that corruption and wasteful bureaucracy is a problem with many NGOs? If so, wouldn’t it be easier and effective to reform such NGOs rather than creating new ones?
A: The perception of socially-driven organisations, especially in Pakistan, has traditionally been linked to non-profits, charities and NGOs. With this association comes the perception — true or not — of bureaucratic, inefficient and unsustainable organisations, which can yield cynicism and frustration directed towards the average charitable or philanthropic organisation, despite the overwhelming spirit of volunteerism that is prevalent in the people of Pakistan.
We want to prove, and have been proving that we can work to alleviate poverty by instilling some of the discipline and accountability of market-based approaches into social enterprises. This is the paradigm shift we collectively have to create, that is, that socially driven organisations can be both efficient as organisations and, at the same time, effective in delivering their social missions.
Q: In your book you’ve mentioned how obtaining housing permission in Lahore took about six to eight months. In such instances, how does the organisation work around corruption at different levels in various countries?
A: We are certainly cognisant of the challenges in the market environments in which we work. Acumen Fund brings a strict adherence to business principles and transparency in everything we do. As we identify potential investments, we seek those entrepreneurs that share similar values around respect and accountability. We’ve been incredibly fortunate to work with entrepreneurs who are inspiring in their integrity and leadership, and whose innovation, imagination and persistence allows them to push toward success despite challenging environments.
Q: How can individuals contribute or make a difference?
A: Everyone has a blue sweater story — an instance that highlights how interconnected we truly are. The key is to continue to find and build those connections to strengthen communities and systems. For example, there are growing networks of people — students, professionals, practitioners — who are working together to take a new look at the problems of poverty. For whatever issues most concern you, find and engage with the communities looking at solving those. Give money to organisations you believe in, learn more about causes you care about, and speak up and share these messages with others.
Read Amna Khalique’s review of The Blue Sweater here.