Chris Crosby

Last summer I wrote a post about the book A Billion Bootstraps which led to Amy and I getting involved in Microfinance. Since that time, I’ve been wrestling in my mind with how to combine some of the most successful elements of capitalism with those of non-profits in order to create charities that are self-sustaining. The idea is to structure companies in such a way that they could generate their own consistent revenue stream by other means than donations and bake sales. The companies however would still be non-profit and targeted on specific philanthropic initiatives.

Well, long story short, I got a little distracted last fall and was never able to reconcile the concept in my mind. That is until I picked-up Muhammad Yunus’ new book Creating a World Without Poverty: Social Business and the Future of Capitalism. After reading this, its safe to say that the creator of Microfinance has done it again. 

In this book Yunus introduces the idea of the Social Business model which he defines as:

a non-loss, non-dividend business. Rather than being passed on to investors, the surplus generated by the social business is reinvested in the business. Ultimately, it is passed on to the target group of beneficiaries in such forms as lower prices, better service, and greater accessibility

Yunus’ first voyage into Social Business was a joint effort between Grameen Bank and Danone to offer highly nutritional yogurt at prices that are affordable to the poorest people in Bangladesh (great overview available here).

It only took until Chapter 2 in the book before my head was spinning with ideas about, not only how to expand this concept to address our country’s poor, but also what will be required to create a true Social Sector and bring the idea of Social Business mainstream.  Thoughts of creating Social Venture Capital Funds and working with Congress to create new and unique tax and entity structures is rather exciting. Expect to hear more from me on this in future posts.

I also have to think that the answer to America’s (and the world’s for that matter) Health Care crisis lies not in relying on our Government to push some type of “Universal” Plan, but rather in creative individuals creating a social business model to redirect industry profits back into solving the problem.

About a month ago, I wrote a post on the book “A Billion Bootstraps” and briefly discussed the concept of Microcredit. Since reading the book earlier this year, Amy and I have been actively researching Microcredit and sizing up the best angle and mechanisms for us to get involved. Coincidentally about two weeks ago, we saw a special on the Chicago channel about Microfinance and Kiva.Org. This program anchored our attention towards what I believe is the future of philanthropy; and I think once you check it out you’ll agree.

Kiva is a non-profit organization that connects microloan lenders directly to Microfinance institutions via the internet. The Microfinance field partner works in the local community to identify and manage the individual loans. (A field partner is essentially a mini-bank without the commercialized aspects that we’re accustomed to). They post the individuals seeking loans with descriptions of who the money will go to and what they’ll be using it for. Individual loan needs range from $200 up to about $1,200.

Would-be loaners can then browse Kiva’s web site and select which individuals they’d like to help. They can contribute anywhere from $25 to the full amount of the loan with literally the click of a mouse. When the loaner decides which loan they’d like to fund and for how much, they are taken to PayPal to process the transaction (PayPal is not charging any processing fees).

Once the transaction is complete, Kiva provides a basic portfolio management tool that allows you to track your loans and the repayment process. They also have some nice community building features such as online journals from the loan recipients.  

Beyond the idea of Microloans, what I am amazed at is how simple and effective the Kiva concept is. Kiva has almost no overhead, operates from donations only and doesn’t take an administration fee out of your loan (thus negating those frustrating annual reports from large charities breaking down how much of your contribution goes to “overhead and administration costs”).

The ability to cost effectively connect individual philanthropists directly with those in need on a global scale is truly revolutionary.   

I believe this model is ingenious. The technology and concepts could be applied to many vertical charitable initiatives. I can envision a similar charity helping America’s homeless population. Someone could take the basic idea of Microloans and extend it to allow people to contribute or fund other services like mental health and chemical dependency counseling, or temporary living to help people get back on their feet, or…

When people can see the individuals they are helping and visualize where their contributions are going, I believe they will be much more likely to get involved (and especially from the comfort of their home PC).

Kiva.Org has gained a great deal of media attention lately and from the looks of it, they’re about to be featured on Oprah.  They also offer Gift Certificates starting from $25, what a great gift for the holidays…

Here is an example loan from their web site: Miguel Mazzini (picture in the banner below). He needs $550 to expand his seafood selling business. Miguel will be repaying the loan over eight months.

Miguel has 7 years’ experience in selling seafood, which he learned from his father who took him to work with him from a very young age. Miguel learned and mastered the trade as he gained more experience. He decided to work on his own since he was married and needed to be able to cover the expenses for his household. He works from 4 am to 11 am every day with his wife and a relative who helps them remove the meat from crabs so that later it can be put into tubs and sold.

Miguel wants a loan to be able to invest in different types of seafood. This is his second loan with our program. He hopes that he can give his brother work with the income generated. Miguel is married, 23 years old, and has a daughter six months old. He hopes to be able to earn enough to have his own home, since he now lives with his parents.

Go ahead and say it, “This is awesome….”

	Make a loan Change a life
Name: Kossi A. Location: Togo	Loan Needed: $1,000 33 % funded

A couple months ago I was in my local book Bookstore looking for Al Gore’s “Assault on Reason” (forthcoming review) and happened to stumble on a book called “A Billion Bootstraps“.

Being new to the idea of Microcredit, and a philanthropist at heart, this one caught my eye. I have to say, this book is a great introduction to the world of Microcredit and is a must read for the philanthropist or anyone trying to make a charitable difference in the world.

Microcredit essentially facilitates providing the world’s poorest “entrepreneurs” with operating capital to grow and expand their businesses. The only real difference between Microcredit and what you would expect to see in Small Business Loans in America is the fact that these loans are usually in very small amounts, sometimes just a couple hundred dollars. And the businesses the recipients are growing are to support their families and pull themselves out of poverty.

After reading the book, there are several highlights about Microcredit programs that grabbed my attention and have garnered my full support, interest, and investment dollars:

1. It’s sustainable. The borrowers have to pay the money back to the bank, and that in turn is recirculated to other borrowers. This non-handout approach ensures that your contribution is helping multiple families over the course of many years.
2. The small dollar amount of the loans means that a given amount of money can impact more people.
3. We often take for granted that in America there is an infrastructure that empowers people to help themselves. In some of the world’s poorest nations, this simply isn’t the case. This program focuses on teaching these people some of the fundamental skills that we take for granted and gives them a ladder to pull themselves up on.
4. It’s not just throwing money at a problem that perpetuates itself. It’s designed to solve a problem. 
5. Being an Entrepreneur and “Business Guy”, I can appreciate the value of capital in growing a business. I find it fascinating that the same concepts applied on such a small scale to individuals around the world can have such a big impact to peoples’ livelihood.

A Billion Bootstraps has several Appendixes with information on where to get started, as well as how to perform due diligence and research on the funds or programs that you are interested in.

Here is an example from the sample book chapter found here:

“Microcredit in Action

The Mikhayloynas were struggling in Ukraine. They were living in an unheated, half-built house that they could not afford to finish, and their government pension barely covered the cost of their food. With no money for medicine or other necessities, Galina Mikhayloyna started selling milk in jars at the local outdoor market where vendors sell everything from hand-knit socks to home-baked bread. She soon was able to add grain to her
merchandise, but did not have enough money to build up her supply or to stock other products. Galina obtained a $400 microloan which she used to increase and diversify her inventory with a variety of popular household products. Sale of these additional products produced enough extra income for the Mikhayloynas to be able to finish their house. Subsequent loans helped Galina move up to the best selling place in the market. She now has many customers and is known throughout the market as a strong businesswoman and savvy entrepreneur.”

If you want to help make a difference in the world, head to the bookstore and pick this one up today.