Saving The World A Cup at a Time

Give a man a fish, he’ll eat for a day. Teach a man how to fish, he’ll eat for a lifetime."
  — Chinese proverb (surprisingly not a biblical quote as I believed)

You would have to be living in a cave not to notice the seismic change in people’s attitudes and interests in helping others, especially the plight of the poor in developing countries. As I have tried to get my own compass and strategy set, I have posted on a variety of "social entrepreneurship" ideas and topics to get my own thoughts organized. My wife and I set up a foundation about 14 years ago, originally focused on early childhood development since children are often so far behind the 8 ball by age 5 that they never catch up. This is a wonderful area for philanthropy and in need of significant funds. However, I have also been looking to find a way to blend my day job with our philanthropic activities.

The light bulb went off for me while reading a recent Fortune article, "Saving the World One Cup of Yogurt at a Time." It describes the latest chapter in Muhammad Yunus’s efforts post his Nobel Prize for his revolutionary work on Microcredit. His core tenants revolve around the notion that self-sufficient entrepreneurship, rather than charity, is the solution to poverty. This has lead me to defining a personal focus on giving around "encouraging and teaching entrepreneurship to tangibly alleviate poverty." My interest is more in teaching the fishermen themselves, but there is also another credible area around running entities for the benefit of charities. One of my readers, Bob Musser, at Auction Inn, is an example of this later model.

Yunu’s initial work dramatically changed the landscape of the microlending world. He started off by lending $27 to people in need, particularly women, so that they could start small businesses (usually farming related). Through relying on social pressure versus collateralizing assets, he has enjoyed a 98% repayment rate which is higher than traditional banking. The borrowers would rather hit up relatives & friends to make payment rather than failing in front of their peers. You see this notion in the US inner cities where Korean immigrants will pool their capital and award it to one "winner" who starts his/her business with it and pays back the loans from proceeds. I have been surprised that this model has not been adopted by other poor groups in the very same neighborhoods.

Yunus started the Grameen Bank over 30 years ago and the microlending world has exploded to over $9B. As the article points out, this is sorely needed since over half the world’s population is living in poverty while the richest 2% control more than 50% of the wealth. Yunus, Gates and others have pointed out that capitalism is the most efficient & effective market system around but that it can often leave entire populations or sectors behind in the Darwinian war. Charity has sought to address this through redistribution of the wealth, but it often just keeps the recipient fed for the day. He believes business and not government is the solution to many of these poverty issues and claims that 5% of Grameen’s borrowers escape poverty each year, resulting in Bangladesh’s poverty reduction rate rising from 1% to 2% each year.

Yunus has launched another revolutionary program with Danone yogurt in which returns are measured by both 1) self-sufficiency and 2) by return on "social capital". Taken to full fruition, they are talking about having companies issue "social stock" which is tracked not solely by bottom line profit but rather on social good. Investors would look at the pharma company based on lives saved by certain drugs or food companies based on "children rescued from malnutrition." People would buy and sell based on comparative results.

With Danone, the company will invest $500,000 into a new plant in the developing world (India?). It would make yogurt, fortified "to curb malnutrition" and priced to be affordable (7 cents). It would employ local people, it would use Grameen vendors for supplies like milk and would sell through through normal channels as well as through Grameen microvendors going door-to-door. It would also check the boxes on environmental issues like solar panels, biodegradable cups and such. The company would take proceeds back from this to pay back their initial investment.

This creates a win-win-win for everyone. The company can move more assets from pure charity that is often misused or wasted (say targeted already at poverty or training) to this self-sustaining model. It gains new market share in the yogurt wars in a shunned market and it gets significant good will and PR for its efforts. Local inhabitants gain employment (at the plant, selling finished product and supplying inputs) as well as address nutritional issues.

As the article concludes, now this is a BIG New, New Thing to get excited about!

6 thoughts on “Saving The World A Cup at a Time

  1. Give a man a fish, he’ll eat for a day. Teach a man how to fish, he’ll know how to fish.

    But if you provide him with property rights to his own fishing area, which incentivize him to not overfish, and create environmental laws that will protect his fishing area from pollution from the fishing area next to him then you’re on the right track. And if you do not overburden him with taxes so that its worthwhile for him to continue fishing then he can barter with his remaining fish for a new pole and bait, heck maybe even a boat.

    The point is that micro-lending works, but only in countries that provide an open-system economy like Bangladesh, India, or South Africa. The work being done is tremendous and highly commendable (these three countries alone are approximately 1.5 billion people), but it is important to remember that micro-lending is not an end-all solution. We are a generation away, at best, for this to expand to the countries that are the poorest of the poor (Chad, Sudan, Zimbabwe, etc.) and that it should be implemented alongside reforms.

  2. Are you familiar with Individual Development Accounts? I believe that IDAs could be the revolutionary (yet simple) idea that creates opportunities for poor people in America the way microlending has been the revolutionary idea benefitting poor people in Bangladesh and other developing countries. I love to see the intense interest being placed on helping poor people around the world, but I worry that we’re quick to write off poor people in America. I’d love to see you post on what venture philanthropy can best do for Americans in poverty.

  3. “Chinese proverb (surprisingly not a biblical quote as I believed)”

    It does lose a lot of its meaning when not quoted in the original Klingon.

  4. Good blog

    I hope everybody read this article.

    thanks for informations.

    TITLE: Saving The World A Cup at a Time
    BLOG NAME: PhilanthroMedia
    DATE: 03/28/2007 06:00:13 AM
    Matt McCall is a Chicago-based venture capitalist/venture philanthropist who has agreed to blog on occasion for PhilanthroMedia. The following is cross-posted from his VC Confidential: You would have to be living in a cave not to notice the seismic cha…

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