Viewpoint: “Can For-Profit Social Enterprises Count as Public Service?”

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The Truman Scholar commitment to public service originally focused on government service, and more recently, has focused on the nonprofit sector.  The Truman Scholarship exists, in part, to encourage promising young Americans to follow public-sector careers in lieu of more lucrative private sector options.  But my last year working for Gray Ghost Ventures, an “impact investing” firm that has roughly $200 million deployed in for-profit companies worldwide that seek to have a direct impact on poverty alleviation, has led me to ask, “Can you build financially sustainable companies with meaningful social returns, and if so, is that public service?”

Compared to government programs, the world’s problems are simply too large for the nonprofit sector to solve. The federal government spends more on education each year than the entire endowment of the Gates Foundation (and federal spending is only a small portion of all government spending on education in the sector).  And given the financial situation in the United States, budgets for major programs are becoming increasingly tight, and government will likely have fewer and fewer resources as the years progress.  In many emerging markets, corruption and instability have shifted responsibility for development projects away from governments.  If we want to change the world, we have to think of complements to these two incomplete solutions.

In recent years, the field of “social enterprise” has been on the rise.  Today, there are more than 50 firms worldwide that invest in early-stage companies that directly address poverty.  The most famous sector within social enterprise is microfinance – banking practices that lend small amounts (roughly $100) in emerging markets, with mostly women clients, and have repayment rates at upwards of 98 percent.  Microfinance was made globally famous by founder Muhammad Yunus winning the Nobel Prize in 2004, and today, more than $3 billion is invested in small-scale microfinance banks alone.  Major multinationals from Deutsche Bank to JP Morgan are now participating, and any individual can make a small-scale loan to an individual in the developing world through the website Kiva.org

In the past five years, organizations like Omidyar Network, Acumen Fund, and Gray Ghost Ventures, my employer, have been investing in companies beyond microfinance that address poverty.  These enterprises are varied and high-impact.  D.Light Design, for whom fellow Truman Scholar Greg Nolan (FL ’06) interned, is a solar-powered light that is sold in India, Kenya, and Tanzania for $10 – or two months’ worth of kerosene for a family living below the poverty line – and has sold over 100,000 units.  Promethean Power Systems, for whom fellow Truman Ming-Jay Shiao (OH ’06) consulted, makes solar-powered bulk refrigeration units that increase farmers’ income by upwards of 50 percent, cuts down on carbon emissions from heavily-polluting diesel machines significantly, and are an attractive alternative based on energy cost-savings to multinational dairies and food companies.  I worked for the Indian School Finance Company in Hyderabad, which makes market-rate loans to low-cost independent schools in slum areas of India, an increasingly large part of the Indian education system.  

Do these enterprises count as public service?  The sector is too young to tell.  But if these enterprises can be financially successful, they are more self-sustaining than nonprofits and do not face the same budgetary pressure as governments.  In addition, being able to leverage the sheer volume of capital in the private sector – several orders of magnitude greater than the grant dollars available in the philanthropic sector – has world-changing potential.  The for-profit social-enterprise sector has its risks: companies need to maintain a strong focus on their social mission to keep the “public good” objective (for example, microfinance banks, if the interest rates are too high, could border on exploitation), and to date, financial successes for investors have been limited.  But as our world struggles to figure out how to bring about major social change with increasingly limited resources, I encourage Trumans to think about how we can include business solutions as a piece of how our public service mandate can change the world.

Ross Baird (GA ’06) is an investment analyst at Gray Ghost Ventures, an impact investment firm dedicated to providing market-based capital solutions to entrepreneurs who are addressing the needs of low-income communities in emerging markets.

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