Established in the mid-1970s, microfinance provided tiny loans to poor families to help them start to expand small businesses. Thirty years later, the practice had helped more than 80 million people lift themselves out of extreme poverty. The practice had grown into a global industry comprised of more than 3,000 microfinance institutions.
Early pioneers of microfinance, such as Muhammad Yunus of Grameen Bank, had become celebrities of sorts, receiving scores of humanitarian awards, including the the 2006 Nobel Peace Prize. Similarly, the microfinance movement itself had become so well-known that it invited comments from mainstream cultural icons such as Bono, lead singer of the band U2, who said: "Give a man a fish, he'll eat for a day. Give a women microcredit, she, her husband, her children, and her extended family will eat for a lifetime."
Despite these accolades, Geoff Davis and Mike Murray believed that while microfinance was an important social innovation, it was dramatically underperforming relative to its potential because it had yet to achieve adequate scale. They pointed out that less than 20 percent of the world’s demand for microfinance was being met. Murray observed, “Usually, an industry that had those dynamics would have been closed down.”
Prompted by their vision of microfinance’s potential they founded Unitus, Inc., a nonprofit focused on accelerating the growth of the microfinance industry so that vastly more people could gain access to the capital they needed to generate an income, raise their standard of living, and fulfill their basic needs.
This case explores dynamics in the microfinance industry, describes the Unitus business model, and sets up an important decision facing the company: whether or not to expand the amount of capital it can provide to its microfinance partners through the creation of a debt or equity fund.
Case No: SI87A
In 1988, Paul Jones, a 32-year old money manager, started the philanthropic foundation Robin Hood with $3 million and the objective to fight poverty in New York. He invited two of his close friends, Peter Borish and Glenn Dubin, to serve as cofounders and recruited David Saltzman to join the staff. From its inception, Robin Hood applied the investment orientation of its founders to focus on poverty prevention by “funding…the best community-based groups and partnering with them to maximize results.” The foundation focused on four core program areas: (1) early childhood and youth, (2) education, (3) jobs and economic security, and (4) survival. As an early innovator of venture philanthropy, Robin Hood emphasized rigorous due diligence, direct engagement with grantees, and social outcomes assessment. Robin Hood provided grantees with both financial contributions and management and technical assistance. The organization’s board members demonstrated their own commitment to high engagement philanthropy by contributing both time and money to supporting Robin Hood’s grantmaking and internal administration. The board covered all infrastructure costs, ensuring that 100 percent of external donations went directly to grantmaking. Robin Hood did not have an endowment, but maintained a reserve fund that could cover existing grantee costs for at least a year. By 2005, Robin Hood had become the largest private poverty-fighting organization in New York City, and its venture philanthropy model had inspired various foundations and funding intermediaries nationwide. Nonetheless, Robin Hood was committed to having an even greater impact and reaching the 1.7 million New Yorkers still living in poverty. To achieve this, the management team hoped to improve application of best practices and metrics to grantmaking decisions and to more proactively share its knowledge-base with grantees and the greater philanthropic community.
Paper Copy: Contact email@example.com for availability.
Case No: SI86
In response to the closure of California state psychiatric hospitals, Rubicon Programs was established in 1973 to provide social services for recently deinstitutionalized individuals suffering from mental illness. Located in Richmond, Calif., an area with great need and high unemployment, Rubicon quickly expanded to offer a wide range of programs and services addressing poverty and homelessness for people with barriers to employment.
By 2003, Rubicon Programs had grown into a large nonprofit organization with an international reputation for its success as a social enterprise. Aside from its two core programs of Integrated Services and Rubicon Housing, Rubicon operated three revenue generating business units that employed clients of its social programs: Rubicon Landscaping, Rubicon Bakery, and Rubicon HomeCare Consortium.
While the top management team agreed that Rubicon’s individual units were successful, the team wondered whether the social and economic value created by the whole was more than the sum of the parts.
The videocase explores Rubicon’s reflections and deliberations about their corporate strategy. In addition, it focuses on a decision about how to deal with the struggling home health care division. DVD, Total Run Time: 29:16 min.
Case No: SI77V
Jim Casey, one of the founders of United Parcel Service, established the Baltimore-based Annie E. Casey Foundation with his siblings in 1948. The foundation’s mission was “to build better futures for disadvantaged children and their families in the United States” and to “foster public policies, human service reforms, and community supports that more effectively meet the needs of today’s vulnerable children and families.”
As the foundation grew, it developed a grantmaking strategy that included making grants to organizations that focused on: (1) improving major systems serving disadvantaged children and families, (2) transforming neighborhoods, and (3) promoting accountability and innovation. In 1998, the foundation expanded its grantmaking strategy to include program-related investments (PRIs) and mission-related deposits (MRDs).
A PRI was an investment “made by foundations to support charitable activities that involved the potential return of capital within an established timeframe.” An example of a PRI made by the Annie E. Casey Foundation was an investment in Cascadia Revolving Fund’s Child Care Fund. The fund, in turn, loaned money to child care centers in Washington and Oregon.
An MRD was an investment into a financial institution with the goal of increasing the efficiency of the financial services industry in underserved minority and low-to-moderate income markets. An example of an MRD made by the foundation was a $250,000 deposit in the Louisville Community Development Bank.
In 2002, the Annie E. Casey Foundation hired a director of social investments to more fully develop the strategy and execution plan for its $20 million of PRI and MRD funding. By 2005, this number had been increased to $100 million (3 percent of the foundation’s total assets).
Challenges facing the director of social investments included how to enable the long-term sustainability of grantees, track financial and programmatic performance of PRIs and MRDs, and resolve the tension between social investment and programmatic strategies, particularly related to the foundation’s focus on showing impact in specific neighborhoods across the country.
Paper Copy: Contact firstname.lastname@example.org for availability.
Case No: SI74
In the most basic sense, a market failure occurs whenever the production or allocation of goods or services by a market is suboptimal. On the one hand, this can mean that the output, price, or distribution of products is either inefficient in the sense that the overall level of economic value or social welfare could be increased, typically through transactions that should occur, but don’t (even though they would create value), or through transactions that do occur, but should not, because they destroy value. On the other hand, it can mean that the resulting allocation is inequitable or inconsistent with values of justice or fairness.
From a public policy perspective, such failures are of concern because the public interest or overall social welfare is lower than it could be if the market were functioning more efficiently. Or, in the ideal case, this is what economists would characterize as Pareto efficient or Pareto optimal. Traditionally, societies have looked to government intervention to correct these market failures. At times, when a market failure affected a population’s access to food, shelter, clothing, medical care, or other basic necessities, charitable organizations also got involved. However, private businesses were rarely called upon (or expected) to respond to breakdowns in efficient market operations by modifying their behaviors in a free-market system.
A new class of actors has recently gained recognition. These individuals often found and manage organizations drawing on innovative ideas, using entrepreneurial skills, and leveraging market principles, but with one important difference from traditional entrepreneurs: They prioritize social impact over the creation of wealth. By shifting their emphasis from financial to social returns, these social entrepreneurs, as they have come to be known, have been discovering and implementing new ways of creating social and environmental value by serving the needs of poor, disadvantaged, and neglected communities.
In a world where a billion people earn less than $1 per day, and 4 billion people have an annual per-capita income below $1,500 (the minimum necessary to sustain a decent standard of living), many observers see these social entrepreneurs as poised to play an increasingly important role in addressing important social problems.
The written case SI72A & SI72B "Social Entrepreneurs: Correcting Market Failures (A) and (B)" and its companion videocase SI72V detail the efforts of three social entrepreneurs who brought innovative ideas, used entrepreneurial skills, and leveraged market principles to correct these market failures. It also highlights one important difference between them and traditional entrepreneurs—they prioritized social impact over the wealth creation.
By emphasizing social returns, these social entrepreneurs have been serving the needs of poor, disadvantaged, and neglected communities.
The entrepreneurs showcased are: (1) Jim Fruchterman, Benetech, who created technology-based projects such as reading machines for the blind; (2) David Green, Project Impact, who developed an innovative approach to manufacturing low-cost, high-quality medical supplies to treat and prevent blindness and deafness in the developing world; and (3) Victoria Hale, OneWorld Health, who worked to develop new medicines for infectious diseases that killed millions of people in the poorest parts of the world.
The three discuss how they launched their organizations and how their alternative business models work. The videocase includes supplemental sections on the challenge of product distribution and their reflections on the experience of being a social entrepreneur.
DVD, Total Run Time: 34:34 min.
Case No: SI72A-SI72B-SI72V
David Green, Victoria Hale, and Jim Fruchterman had each developed unique and innovative solutions that addressed glaring “market failures.”
For Green, and his organization, Project Impact, it was a new approach to manufacturing low-cost, high-quality medical supplies. For Hale, of OneWorld Health, it was an organization and process for developing drugs to treat infectious diseases affecting millions of the world’s poorest people. Fruchterman, of Benetech, had created a host of technology-based products that supported the disabled, the vulnerable, and the forgotten.
Yet, while these three social entrepreneurs had made great strides in understanding and inventing new approaches to persistent and neglected problems, they all found that their ultimate impact hinged on how effectively they could get these solutions into the hands of their intended beneficiaries. Without timely, cost effective, and broad distribution, the remarkable innovations they had engendered would fall short of their potential.
This paper explores the challenge of distribution, particularly for nonprofit entities seeking to bring their products and services to hard-to-reach places around the world. It also describes the creative solutions employed by three innovative organizations.
This case has a video supplement: "Social Entrepreneurs: Correcting Market Failures."
Case No: SI72 B
Established in the late 1960s, Interplast was the first international humanitarian organization to send American medical professionals overseas to provide free reconstructive surgery to children and adults in developing countries. Over the next 30 years, Interplast grew from an informal volunteer-led effort into a professional organization.
By 2000, Interplast had over 2,500 volunteers, had sponsored trips to 30 countries, and performed over 3,000 surgeries each year.
The case "Interplast's Dilemma" is intended to be used as a background reading for the companion videocase, "The Evolution of Interplast."
The videocase details the organization's growth and the debates that arose as it began to shift its focus from direct service (sending surgeons and other medical professionals overseas to provide reconstructive surgery) to education (investing in training foreign doctors) and empowerment (providing resources and infrastructure) so that these local professionals could serve their own population. It chronicles the debate over this shift as well as related policy decisions, raising issues of organizational evolution, strategic change, and nonprofit governance. DVD, Total Run Time: 30:10 min.
Case No: SI14-SI14V
In 1992, the Reichs started an innovative public school in a low-income area of New York City to provide quality education to urban children that the public school system was not serving properly. They had founded the Beginning with Children Foundation in 1989 as a public foundation to support the school.
Alternative public schools did not exist when the Reichs were planning the educational and business model for their school. In addition to getting a site, negotiating with the NYC Board of Education, and raising funds, they had to create an effective educational model and curriculum whose performance could be measured, enlist the support of teachers and parents to the model, and publicize their accomplishments.
The case provides the background for the challenges the Foundation faced in its first eight years, and then opens for discussion what the new strategic direction might be for the Foundation after charter legislation passed in 1998, and the Reichs decided to convert the school to an independent charter.
The Foundation considered: (1) becoming an advocacy organization for charter schools and public school reform, (2) creating new charter schools by replicating the model, (3) converting to a national policy think tank to analyze accumulated data and publish studies, (4) becoming an educational consulting firm to provide strategic management and policy services to “client” schools, and (5) applying their educational model to turn around troubled schools.
Case No: SI12
In February 1999, the Amy Biehl Foundation Trust (ABFT) was preparing to expand its operations outside Cape Town, South Africa. However, their plans were challenged by a strike at the Community Bakery, a mission-driven revenue generating enterprise connected to ABFT, and financial irregularities at one of their newest programs, the Parent Teacher Pupil Program.
Both incidents threatened to undermine Peter and Linda’s philosophy of identifying and supporting leaders from the South African communities in which ABFT operated. Peter and Linda needed to quickly make decisions on each of these incidents, knowing that they had to balance undermining the initiative and leadership in the community with letting the situations escalate beyond their control.
Teaching Note available.
Case No: SI01
This case describes Gilead Sciences' initial experience implementing an access program for delivering its AIDS drug, Viread, to developing nations in Africa.
In April 2003 Gilead announced the Gilead Access Program to make available the company’s new drug, Viread, at no profit to developing countries.
Viread represented a significant advancement in anti-retroviral medicines for the treatment of HIV/AIDS with once-a-day dosage, greater effectiveness, and a much-improved side-effect profile. Gilead executives expected the Access Program to have an immediate, positive impact on the treatment of HIV/AIDS patients in the world’s poorest countries.
A year after implementation, however, the Access Program had not led to widespread use of Viread in Africa. Having learned from early missteps, Gilead had to make significant changes to improve the program. It also wanted to expand the Access Program to create greater access to therapies in middle-income regions.
Readers of the case are asked to address these issues. The A case discusses Gilead's initial considerations in designing the Access Program.
Case No: P53B