By Bill Clinton
Charity alone will not solve the world’s problems. Capitalism can help and at the same time put people back to work. There has always been a gap between what the government can provide and what the private sector can produce, a gap charities have long helped to fill. But as our world and economies evolve, we have an opportunity and a responsibility to reconsider how to fill this gap – to rethink the relationship between economic and social challenges, so that benefits and opportunities are available to more people.
First, this rethinking is necessary because people are demanding it. FromZuccotti Park to Tahrir Square, people are standing up and saying that for too many citizens the current systems are not working.
Second, the financial crisis has made plain that the path we were on was unstable and unsustainable. While our global economic system has brought benefits to many, it has also exacerbated inequalities, both within and among countries. Too much inequality not only hurts the poor and stifles the dreams of the middle class, it also hinders productivity and growth.
Finally, our increasing interdependence strengthens the link between our prosperity at home and prosperity abroad. It is hard to sell things people cannot afford to buy. Also, economic privation breeds political resentment with all its costly consequences. We therefore have a vital stake in the fates of others – a stake that extends beyond compassion to political stability and economic security.
How do we change course, to merge social and economic progress? Haiti offers us some lessons. Earlier this month, when I travelled there to mark the second anniversary of its devastating earthquake, I could feel a palpable change in the country. Much of this has to do with the focus and drive of the new government. But a lot of it is also due to the approach of Haiti’s friends and partners – an approach driven more by empowering people and communities than by imposing external solutions. My good friend Denis O’Brien and the Digicel Group not only employs 70,000 Haitians, they also rebuilt the famed 19th-century Iron Market bazaar, one of the capital’s landmarks, to create jobs for others, and give charitably to education to ensure that there will be a better educated, more employable workforce. Another example from Haiti is an innovative fund set up by the Carlos Slim Foundation and Frank Giustra to invest in entrepreneurs – giving them a hand up, not a handout.
We are starting to see the success of this new approach in other countries and sectors as well, in the approach of the Bill and Melinda Gates Foundation, in companies such as Walmart, Google and Procter & Gamble that have shifted their corporate culture from promoting social responsibility to increasing shared value.
This is the lesson that we learnt while working to solve the Aids crisis, when the pharmaceutical industry moved from being a low-volume, high-margin business to a low-margin, high-volume one with guaranteed payments. Today, this system is providing millions of people around the world with lifesaving HIV/Aids treatments at much lower costs while also improving the profitability of the companies involved. Similar lessons were learnt from our work with farmers in Africa: by helping them access the fertilisers, seeds and markets they need, we could provide them with a fundamentally more sustainable way to lift their families from poverty than we could ever hope to achieve through traditional charity. The lessons of this work and the benefits of boosting productivity are clear.
The common thread through all this evidence is that private wealth can effectively advance the public good when governments, businesses and non-governmental organisations work together to share expertise and implement lasting solutions. When our bottom line is more about strengthening the future than maintaining the present, and when our financial interests are aligned with our social ones, we will be closer to the kind of world we want all our children to live in.
One of the ways in which I have been trying to support the work of leaders around the world as they rethink our approaches to global problems is via the vigorous discussions and diverse commitments that are generated through our Clinton Global Initiative. To date, members of CGI have made more than 2,100 commitments that have already improved, or are now helping, the lives of nearly 400m people in 180 countries. Many of these commitments reflect the new approach to problem-solving by better aligning the interests and objectives of private corporations, governments and non-governmental organisations. Beyond their specifics, the goal of these projects is to work ourselves out of a job – not to generate perpetual aid dependence.
These efforts benefit both the communities they target and the corporations and philanthropists involved, diversifying their businesses, expanding their markets, training more potential workers and helping to create a culture of prosperity. All this enhances profits, increases economic inclusion and gives more people a stake in a shared future.
Because of these developments, and in spite of current economic conditions, I am hopeful for the future. The problems we face are solvable: we have the means. What we need is innovation, imagination and commitment. The most effective global citizens will be those who succeed in merging their business and philanthropic missions to build a future of shared prosperity and shared responsibility.
The writer is former US president
From the Microfinance CEO Working Group, January 2012
In less than 40 years, microfinance has spread around the world, today providing access to credit and other financial services to more than 205 million poor clients1, most of whom were previously ignored by mainstream financial institutions. From modest roots, microfinance has built a global network of institutions dedicated to serving low-income people. It has transformed our understanding about the power of opportunity.
In early 2011, a group of CEOs from microfinance organizations that work globally began to have regular, informal conversations about the future of the microfinance sector as it matures and faces new challenges. We found that we shared many of the same values and concerns, including a desire to work together to help improve our organizations and advance the industry. From these conversations emerged the Microfinance CEO Working Group (described further below).
Those values and concerns have led the Working Group to adopt a shared approach to the future of microfinance, which this paper outlines, and to urge others to endorse this approach.
The Challenges: Client Focus and Responsible Finance
As leaders in the microfinance industry, we applaud the achievements of microfinance practitioners around the world. Every day, legions of committed, passionate individuals rededicate themselves to their work in support of helping millions (and ultimately billions) of people gain access to financial services. We believe deeply that microfinance is a powerful tool for improving the lives of the poor and that the field has not yet reached its full potential. The number of poor people who could benefit from financial services is staggering: by some estimates, as many as 2.7 billion people in developing countries are unbanked2. The microfinance industry has much more work to do. However, in order for the industry to continue to serve as a vital and creative force in the world, it must recognize and actively address several issues that are crucial to its continued success.
First, the microfinance industry must raise its standards of responsibility to clients. For many years, microfinance organizations emphasized the twin objectives of achieving scale and financial sustainability. At times, in the focus on growth and institutional development, client interests were subordinated to the achievement of financial objectives. Furthermore, new forces were introduced as the industry grew, such as increased competition for clients in some saturated markets and the entry of players that lacked a genuine social-mission orientation. Problems of client over-indebtedness in a number of markets (India, Bosnia, Nicaragua, and Morocco, among others) have received substantial media, political, and in some cases regulatory attention, with repercussions for the larger microfinance community. To ensure greater focus on client benefit and prevent future problems, microfinance needs to develop robust practices to protect, effectively serve, and support clients. The industry needs high-quality and standardized principles and procedures that ensure ethical, transparent business and client safety.
Second, the sector must create real, measureable, social and economic value for clients.For too long, many microfinance organizations have relied on credit as their primary product offering. Recent research demonstrates that the poor live far more complex financial lives than previously assumed. While microcredit is a compelling tool that has helped millions grow their businesses and establish more stable lives, it is clear that clients need a range of services, such as savings and insurance. To effectively support people as they work to improve their lives, microfinance institutions (MFIs) should aspire to offer a broader array of products and services that are tailored to meet client needs. And they need to actively manage their social performance in order to hold themselves accountable for achieving the results they seek.
We envision a microfinance industry that protects its clients, is transparent, and measures and achieves social outcomes and impact.
Advancing Industry Standards Inside and Out: The Three Key Initiatives
We believe that careful, systematic efforts to improve our performance are vital. These efforts must span numerous fronts, including developing strong consumer protection practices and meaningful measures of transparency, and establishing industry standards for social performance. In this vein, we have focused our initial efforts on promoting and supporting three existing initiatives working to raise standards across the microfinance industry: the Smart Campaign, MicroFinance Transparency, and the Social Performance Task Force’s universal standards for social performance management.
All three of these initiatives are working to put in place an architecture that will assist the industry to reach and maintain its highest goals and standards. Each has made important initial accomplishments, and each will need full industry support in order to achieve its potential.
- The Smart Campaign is an unprecedented effort to make client protection part of the DNA of microfinance. Declaring that “protecting clients is not only the right thing to do; it’s the smart thing to do,” the Campaign supports institutions as they ensure that they treat clients fairly and respectfully, and avoid the harm that improper use of financial products can sometimes cause3. The Smart Campaign assists the industry to integrate the widely endorsed Client Protection Principles thoroughly into practices at all levels. This year, the Smart Campaign will be piloting its certification program, through which institutions can demonstrate their adherence to the Client Protection Principles via third-party verification. The Smart Campaign has been endorsed by more than 2,400 microfinance organizations, investors, and individuals in 130 countries – reaching organizations that serve more than 40 million people.
- MicroFinance Transparency focuses on moving microfinance to full pricing transparency. It has published detailed information on pricing by 317 microfinance institutions in 12 countries, representing more than 36 million client loans in all, with 14 additional countries forthcoming4. MFTransparency provides a public forum for MFIs to demonstrate their commitment to transparency and integrity, and serves as an important resource for comparative information for investors, regulators, and eventually, clients. MFTransparency also provides training and advice to ensure that disclosure strengthens the microfinance industry overall. Since 2008, nearly 900 industry leaders have endorsed MFTransparency’s work.
- The Social Performance Task Force (SPTF) is a collective effort by more than 1,000 industry stakeholders to develop common tools for measuring social performance and mission fulfillment5. Subscribing to the belief that you can only manage what you measure, the SPTF aims to support microfinance organizations to effectively translate their social missions into reality. This ambitious initiative is in the process of developing “universal standards for social performance management” for MFIs and will ultimately establish benchmarks for performance measurement and management.
Over the past several months, the Microfinance CEO Working Group has worked to engage with each of these initiatives. We have urged the three initiatives to work more actively with each other in a smoother, more coordinated fashion. We have provided detailed feedback to the SPTF Steering Committee on the proposed universal standards and on the strategic direction of the SPTF going forward. We have met with Smart Campaign representatives for an in-depth discussion on the Campaign’s proposed certification program, in order to provide feedback and learn how our own organizations and affiliates can become involved. We are tracking our organizations’ participation in each initiative, as a challenge to one another to deliver on our word.
While we believe that these initiatives hold significant potential for the industry, we also continue to seek out and encourage exciting new ideas that hold power for the future. We note that there are other promising industry-wide initiatives under development, and we will comment on, endorse, and urge others to support some of them in due course. We also recognize that other networks of microfinance advocates and practitioners are proposing new standards and actions that are constructive steps, such as the Paris Appeal for responsible microfinance6, and the Seal of Excellence for Poverty Outreach and Transformation in Microfinance7.
As members of the Microfinance CEO Working Group, we commit to embed the principles and practices of the three initiatives into our own networks. But while our organizations’ networks collectively serve tens of millions of clients on five continents, we by no means represent microfinance as a whole. We call on our valued peers and colleagues throughout the industry to endorse these three initiatives and to accelerate their adoption within their own organizations.
At this moment, microfinance has an opportunity to build on past successes, learn from, and respond to the challenges it faces in order to be a more responsive, responsible, and transformative industry. By taking sincere and systematic action, we can build more successful financial institutions that help change the lives of the people we serve.
We welcome comment and feedback from the greater microfinance community and beyond.
|Michael Schlein, President and CEO
|David Simms, Board Chair Opportunity International Network|
|Rupert Scofield, President and CEO
|Rosario Pérez, CEO Pro Mujer|
|Steve Hollingworth, President
Freedom from Hunger
|Scott Brown, President and CEO VisionFund International|
|Alex Counts, President and CEO Grameen Foundation USA||Mary Ellen Iskenderian, President and CEO Women’s World Banking|
About the Microfinance CEO Working Group
The members of the Microfinance CEO Working Group believe that strengthening microfinance requires a unified voice and systematic change. Currently, members include ACCION, FINCA International, Freedom from Hunger, Grameen Foundation USA, Opportunity International, Pro Mujer, VisionFund International (World Vision’s microfinance arm), and Women’s World Banking. Initially convened by Asad Mahmood of Deutsche Bank, we have found inspiration in talking with each other about the obstacles facing the industry and each organization’s response. The group meets monthly, either in person or via phone, to discuss major issues and opportunities facing our organizations. The group has selected Rupert Scofield, CEO of FINCA International, and Mary Ellen Iskenderian, CEO of Women’s World Banking, as co-chairs. The Working Group is currently housed at the Center for Financial Inclusion at ACCION.
Though our approaches to microfinance vary in their implementation, all our organizations share the common goal of bringing financial and related services to those who have been traditionally excluded, helping them create new opportunities and better livelihoods for themselves and their families. These central tenets guide our thinking:
Collaboration is powerful. Working together, we are able to share concerns, find commonalities, and develop collective responses. We seek to speak with a cohesive voice, offering potent support to the most important solutions. We believe that drawing together with other microfinance industry groups to jointly advocate for responsible microfinance practices will strengthen the quality and impact of client services.
We must translate language into practice. Microfinance organizations need to go beyond declarations of commitment and develop the processes and procedures that transform those words into reality. This starts with us: Working Group members are committed to raising the standards of our networks and becoming an example to others.
The group has come together to respond swiftly to microfinance issues as they arise, providing a coordinated response to pressing challenges. We serve as a network of peers, sharing concerns and successes. We aim to learn from one another and continually identify ways to strengthen our organizations. We seek to identify and celebrate inventive ideas that offer the potential to improve microfinance’s reach and impact. And we support the dissemination of industry-wide standards and practices, focused on client needs, which will lay the groundwork for years to come.
If you have any questions or comments, please contact Meghan Greene, manager of the Microfinance CEO Working Group, at firstname.lastname@example.org
- May Kunmakara
- Monday, 16 January 2012
About 54 per cent of MFI clients saw increases in income in 2010, compared with 32 per cent among non-clients, the survey showed. Nearly 80 per cent of clients had multiple sources of income. Among non-clients, 66 per cent had more than one job.
Cambodia Microfinance Association and Netherlands Development Finance Company funded the survey, of which 80 per cent of the responders were women.
The ability of MFI clients to repay their loans has grown as the industry has matured, association director Bun Mony told the Post Friday.
“During the last 10 years, customers used to borrow from us just around US$50. But now they are able to get about $10,000,” said Bun Mony, also the director general of Cambodia’s third-largest MFI, Sathapana. “How can we loan them so much money? After our assessment, we see that our clients can pay back these large amounts of money with interest and principle.”
MFI loans average at about $500. The industry has about $570 million in outstanding loans to 1.1 million customers. Prasac, the country’s biggest MFI, had a default rate of 0.14 per cent, the company’s director told the Post last week. About 30 per cent of the MFI’s loans go to the agriculture sector. Kalyan Mey, a senior advisor to Cambodia’s Supreme National Economic Council, as well as an outspoken critic of high microfinance interest rates, told the Post last week that, with up to 50 per cent annual interest on some loans, the potential for default among the Kingdom’s rural population was high.
A lack of understanding among rural debtors could lead to social instability and a loss of property, Kalyan Mey said at the time.
“[The interest rate] is too high to justify any productive gain from the farmer raising pigs or growing rice,” he said.
“At the end of the day, many farmers will lose their houses and their land. It can become a big social problem for the rural community.”
Son Koun Thor, president of the state-owned Rural Development Bank, said last week that free-market forces had left the rural borrowing population at a disadvantage in terms of interest rates.
At many MFIs, rates have fallen from an original monthly 5 per cent to between 2 and 3 per cent. Sathapana’s interest rates are about 25 per cent a year, according to Bun Mony. Prasac’s rates are slightly lower.
Some insiders, however, have said the rates could climb again as more MFIs start to take deposits.
Depositors would demand higher savings interest rates from the institutions, which before 2010 were only permitted to give small-scale loans, a source familiar with the industry told the Post last week on condition of anonymity. “The spread between deposits and loans will only increase,” the source said.
Microfinance Focus, January 17, 2012: Bob Annibale is Global Director of Citi Microfinance and Community Development. He leads Citi’s commercial relationships with microfinance institutions, networks and investors across the globe. Bob also represents Citi on the Board of the Microfinance Information Exchange, the Council of Microfinance Equity Funds, the SEEP Network, the Microfinance Network and the Executive Committee of CGAP (World Bank).
In an exclusive interview with Microfinance Focus, Bob spoke about the vision of Citi Microfinance for the global microfinance sector.
The interview was first published in Microfinance Focus special print magazine which was distributed at the Global Microcredit Summit 2011 in Spain.
Microfinance Focus: How do you see the investment environment changing over the next few years? Is it going to be different from what it has been?
Bob Annibale: Many factors contribute to changes in the investment landscape, particularly recent global events in the equity and sovereign debt markets and slow economic growth in the U.S., Europe and Japan. In this challenging and complex global environment, microfinance is confronting additional challenges, such as the impact of rising fuel and food prices on their clients, continued income inequalities and the need for funders – philanthropic, public and commercial – to continue to invest in the growth of the sector.
As outreach and growth have been pursued in a number of markets, the scaling of microfinance has been accompanied by similar challenges and trends as in the wider financial sector, including competition, sales and collections practices; the need for greater transparency in product pricing and features; the integration of the sector with credit bureaus; and appropriate regulations and supervision.
In recent calendar quarters, growth has slowed in many countries or regions. Though there may indeed be a slowing in the pace of growth in microfinance investment funds, in some countries this may also be in response to changes in customer needs and demand. While the capacity of for-profit and non-profit investors, specialized funds and institutional investors continues to grow, microfinance institutions [MFIs] must recognize that many donors and investors are focusing on a broader agenda that goes beyond financial access to include financial capability and varying degrees of social impact.
Microfinance Focus: Do you believe in the debate of social interest vs. commercial interest? Or they can be both on the same side?
Bob Annibale: Rather than reduce the microfinance sector to a simple dichotomy of ‘social vs. commercial,’ we believe that it will take all kinds of institutions – for-profit, mutual societies, non-profit, etc. — to achieve significant expansion of responsible financial services. Most microfinance institutions, regardless of legal vehicle or ownership structure, began as non-profits. The ability of institutions to grow and reach those whom they seek to serve has required many to raise capital, usually including social investors, international development agencies, and specialist fund investors.
There are many examples of how institutions of all types are part of this important movement, from non-profit and cooperatives to non-bank finance companies and specialized microfinance banks. The regulatory context is an important influence on how the microfinance sector in a country evolves. Success as measured by meeting client needs, however, depends not on the type of institutions, but rather on how well they focus and understand the needs, capability and capacity of those they serve.
Citi Microfinance engages all of Citi’s global businesses to support microfinance sector clients with appropriate products, distribution mechanisms and financing. We seek to broaden and increase the scale and outreach of financial services through such partnerships. We work closely with microfinance institutions and networks as clients and partners as they have the greatest experience, outreach and trust in the communities that they serve.
Microfinance Focus: How the events in India have shaped Citi Microfinance approach towards future investments?
Bob Annibale: Events in India — specifically in Andhra Pradesh — and their impact on the country’s wider microfinance, non-profit and for-profit sectors provide an opportunity to reflect on the challenges of rapid growth, the ongoing need to also focus on financial education not just access, the absence of integrated credit bureaus, and the need for clarity in the regulatory and supervisory context of India, a complex federal system with both state and federal regulators and tensions.
India’s and international microfinance networks, leaders and investors are providing strategic input and a sense of urgency for advancing the need for common industry standards, regulatory and supervisory clarity, and a reemphasis on the need to be more client-centric and to assess social impact. In India, microfinance has brought tens of millions of people formal financial access for the first time, but one observation is the need to ensure that the supporting infrastructure is in place, including financial education.
In India and around the world, financial inclusion remains an imperative for economic growth, at both the community and national levels, and microfinance is an important contributor to expanding outreach. Globally, Citi’s commitment to responsible finance is reflected in our focus on financial inclusion, through the philanthropic work of the Citi Foundation and through Citi Microfinance and our businesses.
Microfinance Focus: What are some of the risks that you think an investor needs to see in some of the fast growing microfinance markets?
Bob Annibale: Recent situations highlight the need to focus on the client and the market, especially with regard to the evolution of the MFI footprint; the development of the competitive landscape; the performance of data and impact assessments; and the decision to make changes in business models. The most recent Microfinance Banana Skins Survey, published in January 2011, reflects the sector’s continued growth and evolution yet also highlights the need for increased focus on clients’ needs and related credit risks. In contrast, institutional risks dominated the attention of respondents in earlier surveys.
Microfinance Focus: Andhra Pradesh is just one state of India? Do you think investors acted responsibly when they nearly froze the funding for MFIs across the nation?
Bob Annibale: Investors and donors have a responsibility to all stakeholders. Some lenders’ response to the uncertainties created by the Andhra Pradesh (AP) situation — to restrict new disbursements while awaiting regulatory guidance and clarity — should be viewed in the context of the preceding period’s significant growth. The positive developments since the AP Government’s October 2010 intervention have provided more certainty along with new disbursements of lending and capital investment, but it will take time to restore confidence fully and for institutions to make the necessary changes to support growth within the changed paradigm. Elsewhere in the world we continue to see microfinance institutions expand and evolve, including in Indonesia, Bangladesh, Mexico, Peru, and other countries.
Microfinance Focus: What is more important for Citi – measuring risk or measuring social impact?
Bob Annibale: Citi’s view of risk is holistic and involves our understanding of our clients and the environments in which they operate. Our MFI clients around the world –- more than 100 institutions in approximately 40 countries –- represent a broad spectrum. They differ in the ways they have evolved; their local regulatory and market contexts; and the clients that they serve, so we make sure to understand not only their business and operating models but also their stated and reported financial inclusion principles, client profiles, impact and objectives. Of course, we also track their performance.
We are very encouraged by the work that is becoming more available on social impact assessing, by both academic and industry specialists, including some of the microfinance specialized rating agencies. Such tools will help us to assess an institution’s value to its clients and community, which are important factors in our risk process.
Our work to expand financial inclusion includes building financial literacy, including the skills and knowledge needed to make best use of the products and services offered by MFIs and others. Financial capacity-building is one of the major components of the Citi Foundation’s support in the sector, as this combines financial education with access.
Microfinance Focus: Tell us how Citi assess impact on the end client?
Bob Annibale: We work with a wide range of financial intermediaries, from small non-profits to large, regulated financial institutions, to reach our end clients. These intermediaries have different ways to build client understanding and to assess and monitor client needs. We and many others in the investment community consider institutional metrics provided by MFIs but we understand that historically these have focused heavily on portfolio quality and outreach. We also analyze a number of the social impact evaluations and ratings that have been introduced. We recognize that better end-client portfolio metrics are needed in order to assess and monitor client vulnerability and over-indebtedness properly.
We have seen that MFIs’ portfolio and reputation problems often result from a lack of appreciation for the pressures on and behaviours of end-clients. Given the realities of the new world in which these clients operate, we must understand and monitor the composition and stress level of MFIs’ client portfolios and assess whether the MFIs have appropriate client assessment processes in place.
Microfinance Focus: Where do you see the next big microfinance market emerging?
Bob Annibale: Providing access to finance for unbanked and underserved populations is a high priority on most governments’ agendas. Financial inclusion in turn fuels economic growth through micro and small enterprises. As the economies of the Middle East and North Africa stabilize, we see significant new demand for financial access in these regions. The important microfinance market that has been poised for huge growth is China, although — as with Brazil — this could prove to be a more bank-led growth. Subject to accommodative regulatory change, China continues to have exciting potential with significant rural and low-income community needs.
Microfinance Focus: On which regions will Citi Microfinance focus this year? What are some of the new product or investments that Citi is working on?
Bob Annibale: Citi works with the sector through our local businesses yet our focus reflects our global franchise presence in more than 100 countries. The Middle East, North Africa and China are definitely high priorities for us, and we will build off of our extensive local presence in Latin America and Asia.
We also seek opportunities in markets like Indonesia, where financial access is limited. We recently closed a funding transaction with Bank Danamon, one of the largest institutions active in microfinance. There also are some large markets where we already have a strong footprint and are looking for innovative ways to deepen our involvement, such as Mexico. There also are significant unbanked and underserved communities in the United States and we have some very interesting partners and initiatives there too, particularly for savings and asset building.
At Citi, we continually look for innovative solutions to tailor our existing products to our wide variety of clients and partner MFIs and to specialized banks, microfinance funds and donors. Mobile banking and prepaid cards are areas where Citi has a significant presence and we are working to extend our exiting platforms to MFIs. We also work with our global clients to develop innovative ways to scale up the funding and banking of sustainable small producer agribusinesses.
Laura Arrillaga-Andreessen, with her husband, Marc Andreessen, the Netscape co-founder, says that she was drawn to philanthropy because of her mother’s early death from cancer.
Published: December 17, 2011, PALO ALTO, Calif.
She cared whether he was giving money away. “One of the first questions I asked him on the night we met was what he was doing philanthropically,” she recalled.
Not your usual flirtation, but also not your usual romance. She is the daughter of a real estate billionaire and ended up marrying an almost-billionaire: Mr. Andreessen, co-founder of Netscape.
Yet the question she posed that evening still resonates. She is encouraging tech titans like her husband to become as famous for giving money as they are for making it.
Stars here often get rich in their 20s, but the tech industry over all has been criticized as being stingy when it comes to public charity. Some executives, like Bill Gates, wait until they retire to become active philanthropists. Others, like Steve Jobs, may not give much publicly during their lives. And while there is evidence that the valley is more philanthropic than it seems, Ms. Arrillaga-Andreessen, 41, says more could be done.
“The word ‘philanthropy’ brings up an image of somebody who’s had an illustrious career, has retired and is giving to highly established institutions that may or may not have ivy growing up their walls,” she says. “I personally have felt the need to give philanthropy a reboot.”
While attending the Stanford Graduate School of Business, she created a business plan for an organization that would teach philanthropy and make grants using strategies borrowed from the venture capital industry. The group, SV2, now has 175 donors who have financed 35 early-stage nonprofits over 13 years and last year gave away almost $500,000.
Ms. Arrillaga-Andreessen has taught a Stanford class on strategic philanthropy for 11 years and is on the board of her parents’ foundation. She started a center at Stanford to connect academics and nonprofits, and this fall published a book, “Giving 2.0: Transform Your Giving and Our World.”
But her most powerful weapon may be her personal cachet. Her father is John Arrillaga Sr., a commercial real estate developer who transformed this area from farmland into techdom’s epicenter. Her mother, Frances, was a philanthropist. Today she and Mr. Andreessen make a glamorous pair. They live in a grand home filled with abstract and pop art she selected. (She has two degrees in art history.)
Ms. Arrillaga-Andreessen has the ear of billionaires. She advised Mark Zuckerberg, founder of Facebook, and his girlfriend, Priscilla Chan, on their $100 million donation to Newark public schools, and is working with Dustin Moskovitz, another Facebook founder, and his girlfriend, Cari Tuna.
She is also close friends with Laurene Powell Jobs, Mr. Jobs’s wife, who many assume will take responsibility for the family’s philanthropy.
Meg Whitman, the former eBay chief and gubernatorial candidate who now leads Hewlett-Packard, has taken advice from Ms. Arrillaga-Andreessen on her family’s giving. “What’s different here in Silicon Valley is people recently have made a significant amount of money much earlier in life,” Ms. Whitman said, “and I think Laura is beginning to change the dynamic here.”
Ms. Arrillaga-Andreessen said she was drawn to philanthropy because of her mother’s early death from cancer. “That inspired me to make a commitment to myself and to her and to God to live a life of service,” she said.
Philanthropy is more meaningful, she says, if people follow their passions but also do intensive research and evaluation.
Bradford K. Smith, president of the Foundation Center, a research organization, said: “This is a field that can run aground on the shoals of being excessively personal and anecdotal or being excessively strategic and analytical, and she weaves that middle ground in a way that speaks to a lot of people.”
Her philosophy fits into the Silicon Valley gestalt. When entrepreneurs, engineers and investors here give to charity, they are most comfortable with the strategies they apply in their day jobs. The Omidyar Network, for instance, started by the eBay founder Pierre Omidyar and his wife, Pam, uses a market-based approach to invest in for-profit companies and give grants to nonprofits. So does the Skoll Foundation, started by Jeff Skoll, eBay’s first president, which finances social entrepreneurs by using the same criteria that venture capitalists use to invest in start-ups. Nonprofits like Kiva, DonorsChoose.org, Samasource and Causes use the Internet to connect people in need with donors, jobs or supporters.
Such endeavors have failed to silence critics who say Silicon Valley isn’t generous enough.
“Society can’t wait,” said Leslie H. Wexner, founder of Limited Brands, who says he gives 10 percent of his time and pretax income to the United Way, Ohio State University and other causes. “It’s sad there are so many entrepreneurs, business successes and venture capitalists who give no thought to society.”
Others here say they are too busy building businesses when they are young to focus on charity, and view their products as their contributions to the world.
“They understand their real contributions will not be through their philanthropy, but rather through their business judgment,” said Leslie Lenkowsky, professor of philanthropic studies at Indiana University.
That may be changing. In 1975, a vast majority of foundations and philanthropic assets were in New York. Today, California is on par with New York.
“Silicon Valley has become the epicenter of philanthropy in the U.S., if not the world,” said Mr. Smith of the Foundation Center. “Along the span of entrepreneurs’ lives, my guess is we’ll look back at this period and see a lot of them did a lot of philanthropy over a long period of time.”
Ms. Arrillaga-Andreessen talked to Mr. Zuckerberg and Ms. Chan about researching their grants, defining their goals and measuring the results. For example, the couple have directed some money to building a system for schools that tracks an array of data, including the number of students and achievement.
“The way she talks about it, it’s an intellectual process, it’s not just giving with your heart,” Ms. Chan said. “Her approach is almost like an engineering approach.”
With Ms. Arrillaga-Andreessen’s help, Mr. Moskovitz and Ms. Tuna are setting up their own foundation. “Since we’re starting in our 20s, we have decades to figure out how to have the biggest possible impact with the resources we have,” Ms. Tuna said.
Ms. Arrillaga-Andreessen declined to discuss the Jobs family’s charity, except to say that Ms. Powell Jobs is “a transformational philanthropist” and that “just because somebody is not giving publicly does not mean they’re not giving in a significant way.”
One of the biggest names in Silicon Valley to fall under Ms. Arrillaga-Andreessen’s influence is her husband.
“I always had the old-school model that I’m going to work for as long as I’m relevant and focus on for-profit activities and someday when I retire I’m going to learn about philanthropy,” Mr. Andreessen said. “Marrying Laura was a huge catalyst to change.”
In some ways, they are a pairing of opposites.
He speaks at triple speed, while she speaks slowly. She is also more reverent, referring to her husband in conversation as “my beloved.” They are intensely private homebodies, eating microwaved dinners at home most nights.
When they go out, it is likely to be for omelets and bottomless tea at Hobee’s, a Palo Alto diner (the Stanford Cardinal for her, with chicken, artichoke hearts and spinach, and the Mountain View for him, with mushrooms, peppers and sausage), or to appear briefly at parties.
AS for their own charity, they started the Marc and Laura Andreessen Foundation. She plans to spend the next year doing research before deciding where to give. They are interested in emergency services, a longtime cause of his, and furthering the field of philanthropy, a cause of hers.
“As attractive and innovative and glamorous as Silicon Valley is, it’s a really tough, competitive place where there’s tremendous pressure to make money,” said Mr. Smith at the Foundation Center. “But having accumulated the money, there’s a real practical problem: How do you find meaning in your life? How do you give it away?”
What does 2012 have in store for giving, especially the impact-driven approach to it we call “philanthrocapitalism”? Having peered into our philanthrocrystal ball, we see giving becoming more dangerous, more controversial, and more political, among other things, as philanthrocapitalists find themselves at the centre of some of the year’s biggest news stories.
Here are our 10 predictions for the coming year:
1. Greater scrutiny of the 1 percent. The role of the rich in setting the political agenda is going to be one of the big stories in the run-up to the U.S. presidential election in November. Philanthrocapitalists hungry for impact are increasingly looking to get leverage by influencing government policy, and this election will set the policy agenda for the next four years at a time when America (and, along with it, the world) faces some tough choices. We have been here before, of course, with George Soros’ support for the “Move On” campaign in 2004, which was ultimately unsuccessful in unseating the incumbent president, George W. Bush. The influence of the Koch brothers on the right is already on the media’s radar, but there are plenty more to be discovered. Expect donors of the left and the right to pitch in to this contest using political donations and philanthropic giving to support policy thinking on issues like budget priorities and health care and school reform. Is this philanthropy or plutocracy? We will all be talking about that this year.
2. Nation building is back. Politics will also be a big theme of philanthropy around the world, which may bring with it genuine danger for those involved. From the nations involved in the Arab Spring to Vladimir Putin’s (for now) Russia, and maybe even North Korea, philanthropists are going to be getting involved far more than in recent years in supporting civic movements and even political movements in countries where there is a real opportunity to change the political balance, hopefully in a more democratic and just direction. As the year-end crackdown on various American-backed nonprofits by Egypt’s military government should remind everyone involved, those threatened by this philanthropy are unilkely to take foreign interference in their countries lying down.
3. Crunch time for Muslim philanthropy. On a related point, 2012 is going to be a year of decision for Muslim philanthropists. There is a huge opportunity for them to strengthen civil society in the Arab Spring countries and work with the emerging entrepreneurs and social entrepreneurs there. Pakistan and Afghanistan are both in need of high-impact philanthropy. Yet with the honorable exception of the Aga Khan Foundation, too much of the giving from Muslim donors, including by some of the multi-billion-dollar foundations set up by the rulers of Gulf countries and their leading businesses, is still focused on traditional welfare and charity rather than social change. Yet change seems likely to happen with or without them, and if they do not help it along, it may well be at the expense of the Muslim wealthy. Perhaps this is an area where Turkey’s emerging philanthrocapitalists will show a lead to the rest of the Muslim world.
4. Occupy philanthropy. One of the big questions of the year will be whether the global Occupy movement will evolve from a necessary voice of protest into an effective force for change. There is an opportunity, and we believe an obligation, for philanthrocapitalists to help reform capitalism, so that it genuinely works in the interest of the population as a whole, not just a small subset of it. Andrew Carnegie understood the vulnerability of capitalism to the perception of it being inherently unfair; it is time today’s successful capitalists did so, too. The gradually increasing pack of CEOs who get it, such as Indra Nooyi of PepsiCo, Paul Polman of Unilever, and Sir Richard Branson of Virgin, have a huge opportunity to set the agenda for their peers, as long as they back up their words with serious action.
5. Steve Jobs, philanthropist. After spending his life being fairly dismissive of philanthropy, the late co-founder of Apple is likely to be one of the most prominent additions to the mega-giving scene in 2012. His widow, Laurene Powell Jobs, has long been involved in giving, having founded an organisation to get students from poor backgrounds into college, participating in the Clinton Global Initiative and Global Philanthropy Forum, and visiting Africa on a trip for philanthropists led by Ben Affleck. Now that she controls her late husband’s fortune, expect her to start putting it to good use.
We can also look forward to some weird and wacky philanthropy from new donors from the social media generation. The Facebook IPO is going to make a lot of people very rich and, since its founder Mark Zuckerberg has already signed up to the Giving Pledge, we are hopeful that the new cohort of wealthy will turn to philanthropy as a priority. The most entertaining philanthropist of 2011 was Silicon Valley venture capitalist Peter Thiel, who famously/notoriously offered $100,000 grants to get people to drop out of college and start a business, as well as supporting efforts to create new floating countries in international waters (“sea steading”) and launching a science fund closed to university academics, a large proportion of the people we normally think of as scientists. Plenty of people think Thiel is nuts, which is great. Too much philanthropy today talks about risk-taking without being willing to court controversy. Expect the donors of the social network generation to have no such fears.
6. Celanthropy’s new stars. Ben Affleck will become more prominent on the Hollywood philanthropy scene, though probably still lagging behind the likes of Brangelina, George Clooney, and Matt Damon. The celanthropist to watch, though, will be Lady Gaga, who we expect to take a big step forward in her giving, probably with a cause dear to the hearts of her “Little Monsters” (as she calls her young fans). Another celanthropist worth watching will be Ashton Kutcher, to see if he can recover as a force for good following a messy divorce and some unfortunate tweeting in 2011. Despite his and other bad celebrity experiences, the use of Twitter and other social media in philanthropy will continue to increase — which should mean even more celebrity mishaps this year.
Some giving dynasties will also move more clearly into the limelight. Will Chelsea Clinton, as well as championing social causes in her new TV job, take a bigger role at the Clinton Global Initiative? Expect greater interest to be taken in Barbara Bush, daughter of George W., and her health care nonprofit, Global Health Corps. And now that he is focusing on philanthropy, expect some bold initiatives from Howard Bufffett, grandson of Warren Buffett. Also watch out for the House of Windsor, as Britain’s Brangelina, Wills ‘n’ Kate, make a serious effort to build a celanthropic brand, hopefully learning from the ability of Princess Diana to draw attention to an issue and the underrated skills of Prince Charles as a social entrepreneur.
7. Deep impact. This will be a big year for “impact investing,” which explicitly seeks both financial and social/environmental returns. So far, there has been much more talk than action, but the time has come for the money to back the ideas. The Omidyar Network has already taken a lead, but some other big philanthrocapitalists will join it this year. Enter the Gates Foundation?
8. The great extinction. Alas, it is going to be a tough year for many nonprofits. We are braced for more scandals about inspiring narratives unsupported by facts, along the lines of the 2011 Greg Mortenson exposé. The pain of government spending cuts will be felt widely, both directly, as many nonprofits rely on money from government, and indirectly, as cuts to government services will lead to greater demand pressure on non-government alternatives. We think that many nonprofits will be faced with serious shrinkage and, in many cases, extinction. Our hope is that smart donors will grasp the nettle and try to manage this culling process, encouraging mergers wherever possible, so that the best of the nonprofit sector is preserved or, better still, made stronger.
9. Philanthrocapitalism the Chinese way. There was some schadenfreude when the Gates-Buffett visit to China in 2010 failed to drum up new signatories to their Giving Pledge, although that was not the immediate goal of their mission. We expect philanthrocapitalism to become an increasingly important force in China in 2012, though it will have a distinctive local flavor. Instead of traditional, American-style, foundation-oriented philanthropy, we expect a wave of stories about corporates playing a key role in solving social and environmental problems through a version of “social investment.” China is now hitting a difficult stage of economic development when it needs to manage its use of natural resources, stop competing on low labor costs alone, start tackling potential drags on its competitiveness, such as its rapidly aging population, and deal with rising expectations among the populations. All of this requires a wave of innovation, which China’s philanthrocapitalists are well placed to lead.
10. Some good news. We are hopeful for some big breakthroughs that will prove that philanthrocapitalism works. Will some of the few remaining countries still hit by polio announce that they are free of the disease? Will the death toll from malaria plunge even further and faster? We think so, and that as it does, it will validate the “posse” approach to solving the world’s problems at the heart of philanthrocapitalism. Expect more new posse partnerships to be announced, similar to the Malaria No More campaign led by Ray Chambers, which has galvanized a powerful coalition of the willing. This is a time of growing scepticism about the effectiveness of government, international aid, and even of giving. Yet clear evidence of results may start to change the mood and persuade a growing number of people that philanthrocapitalism is worth the risk.
Matthew Bishop and Michael Green are co-authors of Philanthrocapitalism: How Giving Can Save the World. Bishop is New York Bureau Chief of The Economist; Green is an independent writer and consultant.
[CHICAGO, IL] – Support for microfinance organizations that give small businesses and entrepreneurs access to credit will help spur our economic recovery and create jobs, U.S. Senator Dick Durbin (D-IL) said today at a meeting with officials from ACCION, Chicago’s largest microlender, and the owners of Gourmet Gorilla, an organic school lunch catering company that is one of ACCION’s fastest growing borrowers. ACCION provides credit and other business services to small business owners who do not have access to traditional sources of financing.
“Increased federal funding for microlending programs allows organizations like ACCION to extend credit to small businesses that are ready to expand if we can provide them with the seed money to start growing and hire more workers. Small businesses are the engine of this economy and the key to recovery,” Durbin said.
Durbin, who is the Chairman of the Financial Services and General Government (FSGG) Appropriations Subcommittee, secured $25 million for microlending and $20 million for technical assistance grants to support microborrowers through the Small Business Administration (SBA) in the Fiscal Year 2012 omnibus appropriatons bill enacted last month.
The Community Development Financial Institutions (CDFI) Fund – which is also administered through FSGG – received $221 million in the FY12 omnibus. The CDFI Fund supports microlending to individuals and small businesses in addition to project-based financing in underserved areas. Many CDFIs participate in the SBA’s microloan program, including ACCION.
As a result of increased funding, ACCION will double its maximum loan amount in 2012 from $25,000 to $50,000 to help fill the growing gap between high quality small business borrowers and conventional lenders who no longer will provide loans to them.
ACCION Chicago is a part of the ACCION U.S. Network, the largest microfinance network in the United States. Since its founding in 1991, members have collectively lent $305 million to small business owners nationwide. ACCION Chicago has disbursed more than $19 million to over 2,500 clients since 1994. Last year, ACCION originated 301 loans in the Chicagoland area worth more than $2 million. From 2010 through the first three quarters of 2011, loans originated by ACCION have created or retained more than 1,000 jobs in Chicago.
For more information about ACCION Chicago’s small business loan products, visit www.accionchicago.org or call (312) 275-3000.
Inicjatywa Mikro, owned by Creation Investments Social Ventures Fund I and Balkan Financial Sector Equity Fund, is joining the group of Polish microcredit providers under Progress Microfinance with a senior loan of up to EUR 4 million aimed at supporting the self-employed, in particular of the agricultural sector based in the South of Poland.
Inicjatywa Mikro is a non-bank microfinance institution established in Cracow in 1996 and one of the very few financial intermediaries offering microfinance in Poland. The funding through Progress Microfinance is expected to grow the microfinance portfolio of this institution and to support over 1,200 micro-businesses.
Inicjatywa Mikro will provide client education and mentoring, not only because of its credit risk benefits (i.e. making sure the client succeeds and can repay its micro-loan), but also because it is part of its very mission to help micro-entrepreneurs.
The European Progress Microfinance Facility (Progress Microfinance) is an EU microfinance initiative established with EUR 200 million of funding from the European Commission and the European Investment Bank and managed by the European Investment Fund.
Progress Microfinance aims to increase access to finance for micro-entrepreneurs, including the self-employed. It has a particular focus on, but is not restricted to, groups with limited access to the conventional credit market. Examples include female entrepreneurs, young entrepreneurs, entrepreneurs belonging to a minority group, entrepreneurs with a disability, sole traders etc. Loans of up to EUR 25,000 are made available through selected microfinance intermediaries participating in the facility.
The European Progress Microfinance Fund does not provide direct financing to micro-entrepreneurs or individuals, but it works through microfinance providers, such as FM Bank and Inicjatywa Mikro in Poland.
Largest survey of impact investment market indicates more activity and interest going into 2012
December 14, 2011 – J.P. Morgan and the Global Impact Investing Network (GIIN) released today Insight into the Impact Investment Market, which highlights 52 impact investors’ perspectives on the state of the industry, as well as data analysis on over 2,200 of their portfolio investments. The majority of impact investors surveyed express tempered optimism: while they believe the impact investing industry is “in its infancy and growing,” there is a positive outlook for the industry, with investors planning to invest almost USD 4 billion over the next year, and an expectation that impact investments will compose 5-10 percent of portfolios over the next ten years.
“J.P. Morgan’s Social Finance business provides financial services to the growing market for impact investments, including committing J.P. Morgan capital and providing thought leadership,” said Yasemin Saltuk, Director of Research for J.P. Morgan Social Finance and co-author of the report. “This year’s survey returned more than twice as many data points as last year’s survey, from a broader and more geographically disperse pool of respondents. This research provides more transparency in the growing impact investment industry, which we hope will encourage more investors to enter the market.”
“This research underscores the long-term potential of impact investments while recognizing that the market is in an early stage of development,” said Amit Bouri, Director of Strategy and Development at the GIIN.
“The GIIN looks forward to continuing our work with industry practitioners to support market growth. We hope the analysis helps investors to effectively participate in the market, while advancing field-building activities.” The analysis relied on data collected by the GIIN, a nonprofit organization dedicated to increasing the scale and effectiveness of impact investing. Impact investments are intended to create positive impact beyond financial return. Supporting the findings of a 2010 report that included similar data gathered by the GIIN, impact investors’ expectations for financial returns range from concessionary to market-beating, indicating there is room in the market for a wide range of performance.
The report also identifies opportunities and challenges in the impact investing industry. Investor use of third party systems for impact measurement has increased by 10 percent since 2010, and 65 percent of survey respondents are aligned with the GIIN’s Impact Reporting and Investment Standards (IRIS). Respondents believe
that the top challenge to industry growth is lack of track record of successful investments, and the biggest risks are illiquidity and uncertainty around financial returns. Increased government activity and infrastructure development are helping to address these challenges, improving market information and promoting growth.
About J.P. Morgan: J.P. Morgan is the investment banking arm of JPMorgan Chase & Co. (NYSE: JPM), a leading global financial services firm with assets of $2.3 trillion and operations in more than 60 countries. The Firm is a leader in investment banking, financial services for consumers, small-business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. Information about J.P. Morgan is available at www.jpmorgan.com
About the Global Impact Investing Network: The Global Impact Investing Network (GIIN) is a not-for-profit organization dedicated to increasing the scale and effectiveness of impact investing. The GIIN builds critical infrastructure and supports activities, education, and research that help accelerate the development of a coherent impact investing industry. For more information, please visit www.thegiin.org
Bahawalpur in eastern Pakistan is known for magnificent palaces built during the British Raj, but in the dusty part of town where most of the 400,000 residents actually live, four dozen farmers have gathered in the decidedly unpalatial concrete building that houses the local branch of the National Rural Support Programme Bank. Their darkened, sun-creased faces testify to the toll of tilling soil in one of the hotter places on Earth (at 11 a.m. in mid-June it’s already heading toward 105 degrees); many twist their hair into head scarves, and all don cotton tunics known as kurta.
Suddenly the front door swings open and a tall woman with piercing blue eyes and brownish blonde hair struts in, dressed in a red tunic and baggy pants. Accompanied by the bank’s president, Rashid Bajwa, Jacqueline Novogratz whips out her red notebook and gets down to business. “What kind of livestock do you have?” she asks one client. “How many male calves? How much money are you saving at the bank? What do you do with that cash?” An hour later, the notebook now filled with minute details of how, exactly, the farmers intend to pay back their loans, as well as whether their daughters go to school and what they want their children to do when they grow up, Novogratz walks out of the bank, satisfied. “I’m feeling optimistic about rural Pakistan,” she tells me, as a pickup truck, loaded with field hands, rumbles past a mosque. “Farmers are making good money.”
Novogratz plays the role of auditor because, as CEO and founder of the Acumen Fund, helping people starts with financial due diligence. In April Acumen sank $1.9 million into the bank in exchange for an 18% stake, one small investment in a decadelong experiment in charitable giving. Instead of shoveling aid dollars to causes or governments that give away life-sustaining goods and services, Acumen espouses investing money wisely in small-time entrepreneurs in the developing world who strive to solve problems, from mosquito netting to bottled water to affordable housing. It’s a new twist on the old adage about teaching a man to fish, except that Novogratz wants to build an entire fish market.
The bank in Pakistan is a good example: Acumen’s financial injection has enabled the bank to lend small amounts (up to $350) to farmers. The bank charges 28% interest—exorbitant unless you consider the 9% to 10% the local money lenders charge per month. Acumen has given Pakistani farmers the ability to access cash at credit card rates, versus the loan shark terms of before—a staggering 125,000 clients have tapped the bank for $30 million in new credit this year. Novogratz’s infusion has also allowed the bank to take deposits for the first time, introducing the idea of savings, and 6% interest rates, to a community that has been locked in poverty for centuries. Since April 10,000 farmers have deposited $7 million in the bank, which of course has resulted in yet more loans.
Novogratz obsesses over such numbers. (“How many liters per day of milk are the cows producing?” she asks a farmer later that afternoon as she takes cover from the heat in a grove of rosewood trees.) Hence, the signature notebook, which she ritually fills with observations and talking points that she turns into Acumen propaganda— specifically, Jacqueline’s Journal and Jacqueline’s Letter. Field visits, says the 50-year-old Novogratz, “give me insights and quantifiable data I can bring to conversations that have, frankly, been devoid of them for so long.”
Quantification is key. Acumen Fund is quite literally a philanthropic venture capital fund, which has put $69 million to work in India, Pakistan, Kenya, Tanzania, Uganda and Rwanda. Its loans and equity investments mandate the same benchmarks traditional VCs use, with a twist: Since the donor-investors don’t get their money back—all returns are reinvested in Acumen—progress is measured not in ROI but rather against the good that could have been done by simply giving the money away. No easy task but one that makes Acumen’s mission more critical: to prove that altruistic capitalism can solve the world’s ills.