Archive for the ‘Financing’ Category
Measuring Social Performance for Non-profits
Much has been written on the measuring of social value and impact derived from social ventures. However, there remain several limitations on how non-profits measure impact.
In their paper ” The Limits to Nonprofit Impact: A Contingency Framework for Measuring Social Performance,” Alnoor Ebrahim and V. Kasturi Rangan explore the debates surrounding performance and impact, based on three bodies of literature: philanthropy, nonprofit management and international development.
Based on this, the authors develop a contingency framework for measuring results. The framework suggest that some organizations ought to focus on long-term impact, while others ought to focus on shorter-term outputs and outcomes. The strategy adopted depends on the the operational strategy adopted as well as the “theory of change” that the organization subscribes to.
Read the paper here.
Towards Greater Inclusion of Small Holder Farmers
Last week Villgro held its annual Learning Week for its 2010 Fellows. Among the various issue-areas, we took a look at how businesses models can successfully engage with small holder farmers. We looked particularly at two models – contract farming, and deep procurement. In both models large agri-businesses engage with farmers directly to source raw material and products for consumer consumption. Both models seek to cut out the middle men, and create a more direct, uninterrupted line of supply. However, both models also tend to work with medium and large-scale farmers, rather than ones with smaller land holdings.
Traditionally these farmers have been shielded from interacting directly with retailers. Previous legislation in India that ostensibly sought to protect these farmers from unfair prices have now been lifted, allowing wholesale retailers to directly interact with farmers, rather than go through government-regulated mandis where middlemen acted as procurement brokers. This, combined with growing urbanizatio nand changing consumer patterns has allowed both large agri-businesses and farmers new opportunities to work together, and promises to change the way agriculture is done in India.
But where does the small farmer fit into this? Several examples have pointed to their incorporation under contract farming arrangements for food giants such as McCain, and Pepsi, and domestic agri-business firms such as Calypso Food and Suguna Poultry. Others have been engaged as sourcing channels for Indian retailers such as ITC, and Reliance Fresh. However, studies such as the Monitor Groups Emerging Markets, Emerging Models have shown that less than 50% of the farmers engaged currently are small holder farmers.
So how, can businesses move to being more inclusive of small farmers? Bill Vorley, Mark Lundy and James MacGregor in their paper, “Business Models that are Inclusive of Small Farmers” describe a range of business models for inclusive market development. The papers focuses specifically on models that improve inclusiveness, fairness, and financial sustainability of trading relationships between farmers and agri-businesses, whether processors, exporters or retailers.
The paper identifies three broad models through which this is possible.
- Producer-driven: This model is driven by small-scale producers or large farmers. The aims to create new markets, higher market prices and stabilize market positions for small producers, and large supply volumes for large farmers. An example of this model is the work of Cuatro Pinos, in Guatemala.
- Buyer-driven: This model is lead by processors, exporters and retailers who are looking for regular, reliable and quality supply to meet their supply-chain needs.
- Intermediary-driven: This model is driven by traders, wholesalers, and other traditional market actors, or by NGOs and allied support agencies, or as in the case of China, national and local government bodies. The objective of these actors are varied. trader and wholesale driven models tend to target discerning customers, while NGOs traditionally champion the cause of the poor farmers, and governments regional development.
The examples of several organizations are used throughout the paper to highlight these models. Cuatro Pinos, for example, is a cooperative that identifies existing farmer groups, associations and “lead farmers,” and works with them to test production schemes and provide production support to promising farmers. Credit and assistance is later discounted from the initial product deliveries.
MA Tropical Food Processing is a Sri Lankan firm that operates on the producer-driven model, providing extension services to farmers for production, record keeping, and post-harvest practices. It also acts as an intermediary for commercial credit from banks.
Impact
The authors also present a table compiling the impact on these farmers, using MA Tropical Food Processing as an example. The figures show an almost two-fold income level among farmers part of the MA chain as against those outside of it. Among common crops, farmers tend to receive a higher price per kilogram on average, when compared to other village traders.
Limitations
The models are not without their limitations though. In the buyer-driven model benefits can be limited by high transport charges and delayed payments. Also, producers also demand exclusivity in supply. Suppliers consequently also face the probability of side selling by producers, among other limitations.
The paper proceeds to lay out how small farmers can be prepared to join mainstream agricultural production and what businesses should consider in order to work successfully with small farmers. It also takes an in-depth look at the role of the public sector and donor organizations in supporting the greater inclusion of small-scale farmers.
To read more about the models suggested by the authors, click here.
Pro Poor Value Chains
ITC’s Choupal Fresh was one example discussed at the Villgro Fellows Week. The retail business in India has witnessed a boom in recent years. Securing adequate supply – particularly of fresh fruits and vegetables – however continues to be a challenge. A 2009 Case Study by Rewa Misra, of the Coady International Institute in Canada, looks at the ITC example of establishing supply chains directly from the farmer. This pro-poor method can successfully integrate smallholder farmer.
The case study uses value chain analysis to highlight three aspects. Firstly, which activities/types of firms/strategies yield higher value than others for small holders. Secondly, what forms of relationships, contractual and otherwise work in the value chain and, thirdly what models work best for service delivery.
The key fact established through the case study is that integrating small holder famers within the fruit and vegetable value chain is possible, if large firms such as ITC take a lead in playing a larger role by fulfilling key functions. It also posits that the model works if inter firm relations are purely market based and mutually beneficial.
Read the entire case study here.
Beyond Budgeting: The Rural Need For Practical Solutions
Last week the WSJ India portal published an article ” Budget 2010: Will Rural India Get a Fair Deal?” authored by K. Seeta Prabhu, Senior Assistant Country Director, United Nations Development Programme, New Delhi. Villgro Fellow 2010, Jeanne Chen responds to the article on her blog, Crossworlds. The original post is republished, with permission, below.
This article was originally published by the Wall Street Journal on February 24, 2010, “Budget 2010: Will Rural India Get a Fair Deal”. Within the article, Ms. K. Seeta Prabhu of the UNDP in New Delhi raises a number of extremely relevant concerns about the rural poor of India:
- 42% of rural farmers live under the poverty line
- Small acreage farmers compose 84% of total farmers
- Low agricultural productivity
- Lack of permanent shelter
- Lack of electricity and highly inefficient energy usage
- Lack of employment opportunities outside of agriculture
The situation described demands attention. In response, Ms. Prabhu recommends that the government should take action by injecting massive amounts of stimulus money into large public work projects to build crop warehouses and public toilets, to usher in another “Green Revolution”, to incentivize the installation of bio-plant stoves, etc. The litany of public projects that Ms. Prabhu wants the local governments to undertake is daunting. I find no fault with the problems identified and the end objectives cited, but I do doubt the realistic feasibility of the list of public projects. These proposed solutions are in fact not new; they have been discussed by the development community for some time. The problem doesn’t lie in the solution ideas themselves, but in the implementation – what has been coined as the “last mile challenge”. It’s agreed that these solutions need to happen, but how?
In my opinion, the government is not the agent of choice for solving this implementation problem and promoting large public works projects is certainly not going to address the rural poor’s needs. Ms. Prabhu herself points out that past governmental initiatives to create employment have failed:
“The implementation of the National Rural Employment Guarantee Program has offered some succor but due to various constraints, the promised 100 days of employment have been provided only in the state of Rajasthan. In fact, the performance of the program is quite low in the states of Bihar, Orissa and Jharkhand, which have large numbers of the rural poor.”
The NREG program is a perfect example of how the government failed to reach the last mile. A Villgro associate recently visited with farmers in the impoverished state of Assam and asked them why they were not in the NREG program, which could have more than doubled their current annual income (~Rs8,400 or $170USD). The Assamese farmers said that they weren’t aware that such a program existed. The local governments in charge of the NREG hadn’t publicized the program and so, those funds disappear off into a vacuum and failed to reach the rural poor. How then, will more public programs and government projects help the rural poor climb out of poverty?
Instead of encouraging more public works programs, Ms. Prabhu would do better to promote additional funding for the existing social entreprises who have made immense progress in helping the rural poor increase their income. In Out of Poverty, Paul Polak specifically discusses how rural innovations such as the treadle pump have helped increase the crop yield and income of small acreage farmers far more more than the first “Green Revolution”. Millions of rural farmers have used drip irrigation systems, treadle pumps, and other agricultural innovations developed by social enterprises to grow off-season crops which generate more income or to grow crops during the dry seasons.
There are also other entreprises that are addressing the other problems faced by the rural poor. In fact, Villgro has incubated a number of enterprises that address each of the problems cited by Ms. Prabhu. Innovations such as the Venus Burner help to make energy more efficient; the Pin Pulverizer is a small grinder that allows farmers to mill their grains before they spoil; Desicrew and other rural BPOs are creating lasting employment for women and youth. The list of rural innovations that are practical solutions addressing the needs of the poor continues to grow and their impact has been dramatic. Although the implementation is still difficult, social enterprises have devised ingenious methods for distributing and marketing to that last mile. But most importantly, because the profitability and survival of these social enterprises is dependent on the adoption of the product or service, there is a guarantee that these solutions will actually reach the rural poor.
As the rural poor begin to increase their income through growing multiple crops per year (aided by drip irrigation), cost savings on more efficient energy and other activities, they can begin to invest their additional income to build the infrastructures that they value. Education, health, and permanent shelters are the next logical investments that the poor make, but they have to increase their income first in order to get there. If addressing the needs of the rural poor is the aim, Ms. Prabhu would be better served to support budget allocation of funds to existing social enterprises and the development of rural innovations rather than additional government stimulus and public works programs that fail to actually reach that last mile. The rural poor need practical solutions that place chapattis on their plates and rupees in their pockets, not grand social infrastructure schemes and empty government programs. After all, it’s only a fair deal if the rural poor actually benefits from it.
Fact Check: The Who’s Who of Social Investing in India
Outlook Business India has a great re-cap of the “new breed of VC funds looking to invest in social enterprises.” While several of them may not be new to many of us within the sector, this compilation is still a useful list (although by no means comprehensive) of the industry’s movers and shakers.
- Fund size $40 million (approx)
- Fund manager Varun Sahni
- Investment philosophy and focus To support sustainable enterprises providing the poor with critical goods and services at an affordable price. Primary focus on healthcare, housing, water, energy and agriculture
- Companies invested in 12
- Fund-raising strategy Gets philanthropic donations from individuals, institutions and foundations locally and abroad
- Social good Vs financial profit Social impact is crucial for all investments
- Fund size $250 million
- Fund manager Sarath Naru
- Investment philosophy and focus To build profitable businesses that cater to under-served markets. Focuses on meeting India’s domestic needs (primarily rural and semi-urban markets) by backing early-stage / rapid-growth businesses
- Companies invested in Over 50 (including 25 social enterprises)
- Fund-raising strategy Raising capital from institutional investors—Indian commercial banks, insurance companies, foreign developmental financial institutions, foreign family offices—that are commercial returns-oriented
- Social good Vs financial profit Purely returns oriented. The social good is a by-product of the investment strategy
- Fund size $30 million (still raising)
- Fund manager Bamboo Finance
- Investment philosophy and focus To support enterprises that develop innovative solutions that provide the poor with better access to critical goods and services. Invests mostly equity, with some debt. Investments generally range between $1 million to $6 million
- Companies invested in 4
- Fund-raising strategy Targeting high-net-worth individuals and institutional investors
- Social good Vs financial profit Aims to have a significant social impact while earning attractive financial returns
- Fund size $17 million
- Fund managers Vishal Vasishth and Kartik Srivatsa
- Investment philosophy and focus To support entrepreneurs in high-growth sectors like education and training, agriculture and food, healthcare, financial services, basic utilities (waste, water, rural telecom, affordable housing, etc) that are aligned with inclusive growth
- Companies invested in None yet
- Fund-raising strategy Set up by Soros Economic Development Fund, Omidyar Network and Google
- Social good Vs financial profit Focuses on sectors and opportunities where both financial and social returns can be generated simultaneously
Aavishkaar India Micro Venture Capital
- Fund size Rs 60 crore (approx $14 million)
- Fund manager Aavishkaar Venture Management Services
- Investment philosophy and focus To create sustainable change by increasing economic activity at the bottom of the pyramid and boosting the entrepreneurial spirit. Investments to date have focused heavily on the rural and agro technology sectors
- Companies invested in 17
- Fund-raising strategy Raising funds from commercial and social investors. This includes banks, foundations, Nabard (India’s apex rural bank), commercial organisations and retail individual Indian investors
- Social good Vs financial profit Working with portfolio companies to provide services in rural areas as well as under-served regions
- Fund size $12 million
- Fund manager Arun Gore and Brian Cayce
- Investment philosophy and focus To impact whole communities. Invests in the information, communication and technology space to bridge the urban-rural digital gap
- Companies invested in 4
- Fund-raising strategy A not-for-profit fund supported by foundations like Rockdale, Rockefeller and Global Investment Initiative, among others
- Social good Vs financial profit Prioritises opportunities according to market demand and social impact
- Fund size $40 million (additional fund-raising on)
- Fund manager Elevar Equity
- Investment philosophy and focus To create market-based solutions for poverty eradication. Focuses on sectors like healthcare,
- education and information
- Companies invested in 1 (another two in micro-finance ventures)
- Fund-raising strategy Legatum and Omidyar Network are the anchor investors; approaching other investors for additional funding
- Social good Vs financial profit Believes in for-profit business models to achieve scale
Read the entire Outlook Business article here.
Making your money count: The Case for Community Investing and Social Venture Capital
For several investors today investing responsibly has become a de facto mantra. Further some investors are interested in investing in ways that are socially responsible – i.e, the creation of some social and environmental impact. Investing to reduce poverty in the developing world has also gained considerable traction in recent years. But how do these conscious investors track their investment dollars to ensure that they fulfill their intensions? Socially Responsible Investing (SRI) provides the answer, say authors Jon Daigle, Carrie Hall, Rania Jamal, et al., in their article “Poverty Alleviation through Socially Responsible Investment: Case Studies of Community Investing and Social Venture Capital,” In their article the authors point to four methods of engaging in SRI – screening, shareholder advocacy, community investing and social venture capital. Click to continue…
Barriers to Household Risk Management: Evidence from India
Microinsurance is fast emerging as an important component to comprehensive financial service offerings to the BoP. Recognizing that often the poor fall back into poverty due to financial setbacks caused by illness, accident, death or natural destruction, several organizations are introducing policies that will help mitigate risk better – for example XAC Bank in Mongolia (where the population is nomadic and heavily dependent on the cattle trade), offers farmers livestock insurance.
This paper analyzes the risk mitigation strategies employed among farmers in India. In particular the team at the Institute for Financial Management and Research (IFMR) Center for Microinsurance (CMF), looks at the adoption of rainfall insurance products designed to compensate low-income Indian farmers in case of poor rainfall during the monsoon season. The study compares patterns between Andhra Pradesh and Gujarat, and offers lessons based on their findings.
Read the entire article here.
Agricultural Innovation Diffusion through Microfinance – A Spatio-Temporal Analysis
There have been several criticisms leveled at the microfinance industry over the years. One concern raised by many sceptics is that while microfinance has proved to be a poverty-reducing enabler, it is often indifferent or oblivious to the realities on the ground. The standard model does not always seem to apply its self in every encountered situation.
According to Cameroonian researchers E. N Ndenecho and K. H. Akum, microfinance operations in the Mezam division have not had a significant impact on the largely-agricultural population. Through spatio-temporal analysis of primary and secondary data, the authors analyze the adoption and spread of microfinance in the region. The study concludes that while microfinance has had positive but insufficient impact on agricultural development. To make its reach more successful, the authors recommend microfinance institutions make financial and technical assistance available to the poor by adapting to local realities, and structures while introducing innovations within institutions and processes.
Read the entire article here.
Ten Nonprofit Funding Models
In the non-profit world, the talk of funding is ever present. Since their methods of operation are different from the for-profit world, raising money to fund programs necessitates a dedicated method to bring in money. This often leads to several creative operating and funding models. However often the models developed do not adequately answer questions of long-term stability, or financial viability. What works for one non-profit does not necessarily work for another.
In their article for the Standford Social Innovation Review, “Ten Non-Profit Funding Models,” authors William Landes Foster, Peter Kim and Barbera Christiansen identify 10 non-profit funding models commonly used in the U.S. Through the article they highlight how non-profits can identify different sources of funding, and build partnerships. They also discuss the associated limitations and benefits of each model.
Read the entire article here.
Who Benefits from Promoting Small & Medium Enterprises?
The following is the abstract to the full article by authors Bob Rijkers, Caterina Ruggeri Laderchi, and Francis Teal. The article was first published by the World Bank as part of their Policy Research Working Paper Series.
The Addis Ababa Integrated Housing Development Program aims to tackle the housing shortage and unemployment that prevail in Addis Ababa by deploying and supporting small and medium scale enterprises to construct low-cost housing using technologies novel for Ethiopia. The motivation for such support is predicated on the view that small firms create more jobs per unit of investment by virtue of being more labor intensive and that the jobs so created are concentrated among the low-skilled and hence the poor. To assess whether the program has succeeded in biasing technology adoption in favor of labor and thereby contributed to poverty reduction, the impact of the program on technology usage, labor intensity, and earnings is investigated using a unique matched workers-firms dataset, the Addis Ababa Construction Enterprise Survey. The data are representative of all registered construction firms in Addis and were collected specifically for the purpose of analyzing the impact of the program. The authors find that program firms do not adopt different technologies and are not more labor intensive than non-program firms. There is an earnings premium for program participants, who tend to be relatively well-educated, which is heterogeneous and highest for those at the bottom of the earnings distribution.