Microcredit's Creative Destruction

An article in today's New York Times on the potential collapse of microcredit in India highlights the bumpy ride that always seems to accompany the growth of any new idea.

Apparently, some microcredit lenders in Andhra Pradesh, India's 4th largest state by population, crossed the fine line between balancing profits and social impact to loan sharking, all in the name of growth.  It's easy to see why.  Microfinance is increasingly becoming big business, in part because the need is so great, viable models (like those of the Grameen Bank) have become mainstream, and default rates are customarily low relative to profit margins.  


And, most of all, people can get rich doing it.  SKS Microfinance, India's largest for-profit microlender and backed by famous investors like George Soros and Vinod Khosla, recently floated a $350 million IPO with SKS Chairman Vikram Akula privately selling shares worth about $13 million.


The dynamics (another word for messiness) that accompany innovation and entrepreneurship have a familiar pattern.  Early successes lead to refined models that produce ever increasing value to both customers and providers.  Almost inevitably, these models are exploited by a few bad apples, sinking the whole concept into question.  


Fortunately, all market-based innovations have built-in (although not always timely) mechanisms to clean up the mess.  The refusal (or inability) of those receiving microloans to repay has already led to tighter regulatory restrictions and generated questions among policymakers, legitimate loan providers, and their customers.  The answers to these questions, and the processes taken to find them, will undoubtedly lead to even better, more effective microcredit models in the future.  Unfortunately, the "best" providers of microloans to the poor, which have pulled millions in poverty at least a rung or two up the economic ladder, will end up as collateral damage, at least for a while.


All of this is little comfort to the Indians whose lives have been damaged by unscrupulous lenders.  It's a situation that has probably existed since the beginning of time and always will as long as those who have are willing to give to those who need. 

Clean Water, One Credit At A Time

Today's NY Times Fixes column features a solution proposed by Vestergaard Frandsen, maker of the LifeStraw which operates under a "Humanitarian Entrepreneurship" business model, to address the lack of clean water that afflicts many parts of the world.


In essence, the idea is to use the proceeds of carbon credits, which are increasingly becoming freely traded on global exchanges (like stocks and bonds), to finance investments in clean water solutions (including post-implementation support), thus making the cost of clean water = ZERO. Since boiling water for purification customarily uses carbon emitting energy sources like wood, it not only makes logical sense but Vestergaard Frandsen will make more $$$ the more successful they are at scaling adoption.


If there's one constant in the private sector it's that companies that introduce new, seemingly viable business models create hordes of fast-followers.  This competition generates innovative energy that refines and fine tunes approaches, lowers costs, and provides a platform to "scale" solutions.  


If there's anything surprising about what seems to be a surge of activity from the private sector to generate "profits with a purpose", it might be that it's taken this long to realize that, where there are societal problems of almost unimaginable magnitude, the mechanics of markets may provide a solution that also creates shareholder value. 

Unreasonable Men and the Quest for a Malaria Vaccine

Billy Shore of Share Our Strength

My good friend Billy Shore is the founder and executive director of Share Our Strength, one of the world's leading organizations in the quest to end childhood hunger.  Billy was a senior aide to former U.S. Senators Gary Hart and Bob Kerrey and was selected as one of "America's Best Leaders" by U.S. News and World Report in 2005.

He has a new book coming out called The Imaginations of Unreasonable Men: Inspiration, Vision, and Purpose in the Quest to End Malaria (his fourth; see all of Billy's books here) which follows the story of two audacious scientists who have been racing each other for 30 years to develop the malaria vaccine. He uses the narrative to broach the question, “How do you solve the problems of hunger, disease, and other critical social problems with no natural market?”

Here an article link describing the book and Billy's insights on social innovation, published by Community Wealth Ventures, Share Our Strength's social enterprise consulting firm:

http://www.communitywealth.com/Newsletter/October%202010/Imaginations%20of%20Unreasonable%20Men.html

How To Make Your Car Smell Like French Fries

An article in today's Pittsburgh Post Gazette details a partnership that GTECH Strategies (Growth Through Energy and Community Health), a CMU-Heinz College social innovation spinoff and Echoing Green Fellowship winner, has with Pittsburgh-based  Optimus Technologies / Fossil Free Fuels to collect used cooking oil from local restaurants and other institutions for use in vehicles with converted diesel engines.  By their estimates, Pittsburgh generates an estimated 500,000 gallons of cooking oil annually, much of which is dumped in landfills or literally down the drain, causing not only environmental issues but an economic liability for companies.

GTECH has been filling brownfields with sunflowers for the past three years with the dual purposes of environmental remediation and economic development, and their efforts have expanded to areas including post-Katrina New Orleans.  The partners have already secured $650,000 in grants this year to collect and convert vegetable oil, to convert engines and to build two alternative fueling stations.  

As Andrew Butcher, CEO of GTECH and a Heinz College alum put it:

"This is a sweet spot for GTECH -- the economic potential in eliminating an environmental liability."

They are also working on a $1.6 million expansion plan that would generate 2.5 million gallons of renewable fuels per year and includes converting a block of abandoned buildings in Braddock (an economically distressed area of the city) for a vehicle conversion garage, fueling station, processing and distribution facility, and research lab for cooking and seed oil fuels.

I think this effort highlights some of the characteristics of next generation social innovation ventures--multidisciplinary, multipurpose, scalable, leveraged by strategic partnerships, and, perhaps most importantly, with a business plan that recognizes financial sustainability as a critical success factor.

What do you think?  

Innovating an Ancient Food

Innovations often happen by thinking about old things in new ways.  A recent article in the Washington Post explains how China's expanding population and water shortages, in part caused by growing crops like rice and wheat, are driving new innovations in potatoes.


Yes, the simple spud is getting new attention as a way to stave off poverty and famine, maintain economic growth, and ensure social harmony.  It simply takes less water to grow potatoes and their yield far more calories per acre (a great metric) than traditional alternatives.


The numbers describing the magnitude of the problem don't lie: China as to feed 1/5 of the world's population on 1/10 of the planet's arable land, and the nation's expanding cities are consuming farmland at breakneck speed.

China estimates that by 2030, when its population is expected to level off at roughly 1.5 billion, it will need to produce an additional 100 million tons of food each year.

New, exotic potato varieties are being developed, a major potato research center is being launched in Beijing with the International Potato Center, and entrepreneurs are creating new potato-based foods in traditional forms (buns, noodles, cakes) to accelerate acceptance.  In addition, the government has announced subsidies for farmers who grow high yield seed potatoes and expanded farmer training programs focused on innovative ways to raise crops (and rural incomes).  And it's a good time to be in the Chinese potato business.  Wholesale prices increased 85 percent from November to April, thanks in part to a severe drought that has limited supply.


Think these developments don't affect you?  According to the article:

China has a long-standing policy of food self-sufficiency, growing 95 percent of the grain required to feed its people. The country's sheer size means that a major crop failure or other food emergency here could have international ramifications, overwhelming world food markets with sudden demand.

Just goes to show that sometimes the catalysts for innovation are right in front of us.  We just need to see the world in a new way.

Latin America Redux

Nearly a year ago to the day, I returned from a trip through six Latin American countries--Chile, Argentina, Brazil, Peru, Columbia, and Mexico--searching for prospective students and partnerships for Carnegie Mellon's Heinz College campus in Australia. I learned during that month-long journey that common perceptions (at least mine) of a Latin America in relative poverty, suffering from governmental ineffectiveness, and experiencing continual economic chaos are largely overblown and many countries in the region were thriving in the midst of a global financial meltdown.

Well, I've just returned from Latin America again (same countries with the exception of Brazil, just not enough time this year) even more impressed with the region's progress and dynamism. For over three weeks, I gave lectures at universities, governmental organizations, companies, and public venues on social innovation and the forces influencing innovators throughout the world, particularly those focused on new ways to address basic human needs like clean water, food, shelter, health care, and education.

One presentation, Extreme Innovation: The Future of Products That Could Save The World, highlighted products aimed at supplying basic human needs in radical ways and included:

• A definition of Extreme Innovation, building on decades of academic research and practical examples: "Products that defy conventional boundaries on cost, functionality, or other dimensions valued by end users, resulting in unexpectedly high social and economic impact."
• "Power Shifts" outlining some of the forces currently at work providing challenges and opportunities to innovators including demographic, urban and economic changes, technology influences, and the ongoing climate change debate.
• Some product examples including the LifeStraw, One Laptop Per Child, and Adaptive Eyecare's innovative glasses.

The other presentation was entitled Forces of the Future: The Big Trends and Breakthroughs That Will Reshape The Planet. It's based on the premise that we can probably all agree that the problems that we can define today seem somehow bigger, the forces at work seem somehow more chaotic, and the solutions that emerge seem to require more innovative approaches that at any other time in history. What's perhaps comforting is that this belief has been a consistent theme in every civilization throughout recorded human history, about 27,000 years.

However, that doesn't stop us from one nagging question: whether the ideas, leaders, and institutions that exist in the present are better suited for a world now several centuries behind us? And, if that's the case, are the ways that we've traditionally tackled the challenges of our time hopelessly flawed and irrelevant for what we face in the future?

One thing that emerged in my thinking as a result of putting this lecture together is that design, technology, and the simultaneously decreasing cost of both bits and atoms is creating some very new ways to solve complex problems. One example is the recent DARPA Network Challenge to find ten red balloons randomly distributed throughout the US with the first person or organization to identify the location of all the balloons winning $40,000. Using a "recursive incentive structure" that built on existing social media tools, a group from the MIT Media Laboratory Human Dynamics Group located all ten balloons in just 8 hours and 56 minutes, showing the power of social and computer networks to address complex problems in orders of magnitude less time. See an interview of MIT physicist Riley Crane, the leader of the winning team, on a recent segment of the Colbert Report: http://civic.mit.edu/news/media-labs-riley-crane-on-colbert-report.

The interest in Extreme Innovation and the issues surrounding it seems limitless throughout Latin America and many of my presentations were to standing room only audiences (I think it's the topic, not the presenter!). Looks like Latin America could be on my speaking tour schedule for years to come!