New Business Models for Development in the Mobile Century by Ann Mei Chang
Grant-driven international aid has dominated poverty alleviation efforts in the past century, but its limitations are fuelling a search for new models. Business approaches hold the potential to be more scalable and sustainable, especially if we leverage the revolution we’re seeing in mobile technology. But we have much to learn.
According to the Economist, nearly 1 billion people have been lifted out of extreme poverty in the past two decades. China, which receives relatively minimal aid, accounted for an impressive three-quarters of this reduction. Despite this progress, another billion continue to live on less than $1.25 per day in desperate conditions. Developed countries have stepped up to double official development assistance in the past decade—to more than $100 billion annually.
Traditional aid has many benefits, but some commonly recognized challenges are holding us back:
· Diminishing resources. The economic downturn and high government deficits threaten to limit the development aid available.
· Lack of sustainability or scalability. Typically, grant-driven aid programs run for a limited time in limited geographies. To reach additional beneficiaries, they require additional funding.
· Low flexibility. Traditional aid programs are often defined years in advance, and in frameworks that can be difficult to adapt to dynamic environments.
· Risk intolerant. Donors want to see direct results for their grants, and perceived failure can affect future funding for the recipient organization.
Market-driven approaches to fill the gap between traditional aid and the ongoing need have existed for some time and are continuing to expand. Perhaps the most established is microfinance, which has served more than 130 million clients globally with small loans. And, since the mid-1990s, foreign direct investment has become the predominant source of external financing for developing countries, at more than double the size of official development aid. In addition, as the number of mobile subscriptions fast approaches the size of the global population, we see this technology as holding the potential to further accelerate market-driven solutions.
At Mercy Corps, we are shifting from traditional aid to market-driven models in many of the 42 countries where we work. By designing programs that put us in a market-facilitation role, creating opportunities for shared value, and harnessing the benefits of social enterprise, we’re reaching more people with what they need to lead productive lives, and in a way that will last long after we’ve left.
With market facilitation, rather than providing or subsidizing goods and services, we identify players who have the incentive to fill market gaps and create market linkages that result in serving the needs of the poor, who often are most vulnerable to exploitation. For example, our Agri-Fin Mobile program works with telecom operators, farmer associations, agriculture research institutions and insurance companies to offer bundled information and financial services to smallholder farmers through their mobile phone. Our end goal looks a lot like traditional aid: to increase the incomes of farming families and reduce hunger. But our approach looks a lot like business.
The concept of shared value takes the market-driven approach a step further by working with corporations to create viable models that enable them to fill market gaps sustainably while supporting core business objectives. The mWomen Program at GSMA, the global association of mobile operators, has done this effectively by carefully mapping out the business case for increasing mobile phone access for women in developing countries. This has motivated telecom operators, such as AsiaCell and IndoSat, to target women as they design and market service plans, resulting in millions of new subscribers. With the financial resources and reach that corporations can bring, identifying ways to align business opportunities with the needs of the poor can be a highly scalable approach.
Social enterprise is yet another approach to scalable and sustainable development. Increasingly, such hybrid companies are being created with a “double bottom line” objective—balancing profits and social impact. Yet, in developing countries, social enterprises have so far fallen far short of the opportunity. These less mature markets present additional challenges: poor infrastructure, limited talent pools and less disposable income. The result is often both higher risk and lower reward, creating a tough investment climate.
Mercy Corps sees social enterprise as a particularly viable approach to poverty alleviation, and is working to bring together four essential elements in developing markets that are rarely found in combination.
1. Deep understanding of local culture, challenges and market needs.About 93 percent of our field staff is from the countries where we work and has intimate knowledge of the complex local environment and opportunities. Their creative ideas and entrepreneurial spirit provide the best raw material for building an enterprise that serves real needs and fits the local environment.
2. Expertise required to build a successful business. In many cases, those who are closest to the realities on the ground don’t have the range of business skills or experience that can make or break a new venture. Incubators and accelerators have sprung up to bridge this gap, though typically only for a finite period. At Mercy Corps, our “Social Innovations” team, which I lead, functions as an internal accelerator team, bringing in business, technology and product experts to work hand-in-hand with local entrepreneurs to develop their ideas into viable enterprises.
3. Early-stage funding to prove new business models.Given the typically higher risk and lower reward of social enterprises in developing countries, raising early-stage funding is often challenging. The time required to raise small amounts of seed capital can distract from building the actual business. In addition, grant funding is often risk-averse, while impact investors don’t see sufficient upside. To bridge this gap, Mercy Corps is raising a seed fund for our most promising internal social ventures. This fund will enable us to spread risk across a portfolio of businesses, deploy nimbly to invest in the most promising ideas, and help enterprises prove their business model before approaching impact investors.
4. Scaling to new markets.While many innovative pilots have been launched, even successful models have struggled to scale to new geographies. Typically, teams are able to capitalize on deep knowledge and networks for a particular locale, but expanding to entirely new contexts requires infrastructure, cultural understanding and market knowledge they don’t have. Mercy Corps’ presence around the globe provides us with immediate access and understanding of new markets across multiple regions, facilitating the growth of enterprises to new countries.
The proliferation of mobile devices across developing countries further fuels the possibilities for social enterprise by decreasing the cost of access and scale, and increasing the availability of information and productivity-enhancing systems. This has led to a fast-growing ecosystem of app contests and incubation hubs along with promising mobile services for financial services, health, agriculture, education and more. Despite the excitement, few consumer applications have yet achieved mass scale with those living in extreme poverty given the challenges of illiteracy, poor rural connectivity, distribution and limited resources. The more immediate impacts are emerging in the realm of mobile as a tool for service delivery, such as remote diagnosis by health workers, information dissemination by agricultural workers, resources for teachers and data and information gathering by surveyors. Yet, mobile devices are on a rapid march to reshape the lives of more and more people around the world. Coupling this explosion with market-driven business approaches holds much promise to improve the lives of the poor more sustainably and at scale.
Much is yet to be learned. But we know that deep collaboration between NGOs, the private sector, individual donors and government, along with agility, risk-taking and an entrepreneurial spirit, is required.
Ann Mei Chang is Chief Innovation Officer at The Mercy Corps. She was previously Senior Adviser for Women and Technology in the US State Department's Office of Global Women's Issues and Senior Engineering Director at Google.