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TED@State

Jacqueline Novogratz: A third way to think about aid

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The debate over foreign aid often pits those who mistrust "charity" against those who mistrust reliance on the markets. Jacqueline Novogratz proposes a middle way she calls patient capital, with promising examples of entrepreneurial innovation driving social change.

- Social entrepreneur
Jacqueline Novogratz founded and leads Acumen, a nonprofit that takes a businesslike approach to improving the lives of the poor. In her book "The Blue Sweater" she tells stories from the philanthropy, which emphasizes sustainable bottom-up solutions over traditional top-down aid. Full bio

Clearly, we're living in a moment of crisis.
00:16
Arguably the financial markets have failed us
00:19
and the aid system is failing us,
00:22
and yet I stand firmly with the optimists
00:25
who believe that there has probably never been a more exciting moment to be alive.
00:28
Because of some of technologies we've been talking about.
00:31
Because of the resources, the skills,
00:34
and certainly the surge of talent we're seeing all around the world,
00:36
with the mindset to create change.
00:39
And we've got a president who sees himself as a global citizen,
00:42
who recognizes that no longer is there a single superpower,
00:47
but that we've got to engage in a different way with the world.
00:50
And by definition, every one of you who is in this room
00:53
must consider yourself a global soul,
00:57
a global citizen.
00:59
You work on the front lines. And you've seen the best and the worst
01:01
that human beings can do for one another and to one another.
01:03
And no matter what country you live or work in,
01:07
you've also seen the extraordinary things that individuals are capable of,
01:09
even in their most ordinariness.
01:13
Today there is a raging debate
01:16
as to how best we lift people out of poverty,
01:19
how best we release their energies.
01:23
On the one hand, we have people that say
01:25
the aid system is so broken we need to throw it out.
01:27
And on the other we have people who say
01:30
the problem is that we need more aid.
01:32
And what I want to talk about is something that compliments both systems.
01:34
We call it patient capital.
01:38
The critics point to the 500 billion dollars spent
01:40
in Africa since 1970
01:43
and say, and what do we have but environmental degradation
01:46
and incredible levels of poverty, rampant corruption?
01:49
They use Mobutu as metaphor.
01:53
And their policy prescription is to
01:56
make government more accountable,
02:00
focus on the capital markets,
02:02
invest, don't give anything away.
02:04
On the other side, as I said, there are those who say
02:07
the problem is that we need more money.
02:09
That when it comes to the rich, we'll bail out
02:11
and we'll hand a lot of aid,
02:14
but when it comes to our poor brethren,
02:16
we want little to do with it.
02:18
They point to the successes of aid:
02:20
the eradication of smallpox,
02:22
and the distribution of tens of millions
02:24
of malaria bed nets and antiretrovirals.
02:27
Both sides are right.
02:31
And the problem is that neither side is listening to the other.
02:33
Even more problematic, they're not listening to
02:36
poor people themselves.
02:39
After 25 years of working on issues of
02:41
poverty and innovation,
02:43
it's true that there are probably no more market-oriented
02:45
individuals on the planet
02:49
than low-income people.
02:51
They must navigate markets daily,
02:53
making micro-decisions, dozens and dozens,
02:56
to move their way through society,
02:59
and yet if a single catastrophic health problem
03:01
impacts their family,
03:04
they could be put back into poverty, sometimes for generations.
03:06
And so we need both the market
03:10
and we need aid.
03:12
Patient capital works between,
03:15
and tries to take the best of both.
03:18
It's money that's invested in entrepreneurs who know their communities
03:20
and are building solutions
03:23
to healthcare, water, housing, alternative energy,
03:25
thinking of low income people not as passive recipients of charity,
03:28
but as individual customers, consumers, clients,
03:33
people who want to make decisions in their own lives.
03:36
Patient capital requires that we have
03:39
incredible tolerance for risk,
03:41
a long time horizon in terms of allowing those
03:44
entrepreneurs time to experiment,
03:46
to use the market as the best listening device that we have,
03:48
and the expectation of below-market returns,
03:52
but outsized social impact.
03:55
It recognizes that the market has its limitation,
03:58
and so patient capital also works
04:01
with smart subsidy to extend the benefits of a global economy
04:04
to include all people.
04:07
Now, entrepreneurs need patient capital
04:09
for three reasons.
04:11
First, they tend to work in markets
04:13
where people make one, two, three dollars a day
04:15
and they are making all of their decisions within that income level.
04:17
Second, the geographies in which they work
04:21
have terrible infrastructure --
04:23
no roads to speak of, sporadic electricity
04:25
and high levels of corruption.
04:27
Third, they are often creating markets.
04:31
Even if you're bringing clean water
04:33
for the first time into rural villages, it is something new.
04:35
And so many low-income people
04:38
have seen so many failed promises broken
04:40
and seen so many quacks and sporadic medicines offered to them
04:44
that building trust takes a lot of time,
04:48
takes a lot of patience.
04:51
It also requires being connected to a lot of management assistance.
04:53
Not only to build the systems,
04:57
the business models that allow us
04:59
to reach low income people in a sustainable way,
05:01
but to connect those business
05:03
to other markets, to governments, to corporations --
05:05
real partnerships if we want to get to scale.
05:08
I want to share one story
05:12
about an innovation called drip irrigation.
05:14
In 2002 I met this incredible entrepreneur
05:16
named Amitabha Sadangi from India,
05:19
who'd been working for 20 years with some of the poorest farmers on the planet.
05:22
And he was expressing his frustration
05:26
that the aid market had bypassed low-income farmers altogether,
05:28
despite the fact that 200 million farmers
05:31
alone in India make under a dollar a day.
05:33
They were creating subsidies
05:36
either for large farms,
05:38
or they were giving inputs to the farmers
05:40
that they thought they should use, rather than
05:42
that the farmers wanted to use.
05:44
At the same time Amitabha was
05:46
obsessed with this drip irrigation technology
05:48
that had been invented in Israel.
05:51
It was a way of bringing small amounts of water
05:54
directly to the stalk of the plant.
05:57
And it could transform
05:59
swaths of desert land into fields of emerald green.
06:01
But the market also had bypassed low income farmers,
06:04
because these systems were both too expensive,
06:08
and they were constructed for fields that were too large.
06:10
The average small village farmer
06:13
works on two acres or less.
06:15
And so, Amitabha decided that he would take that innovation
06:18
and he would redesign it from the perspective
06:21
of the poor farmers themselves,
06:23
because he spent so many years listening to what they needed
06:25
not what he thought that they should have.
06:28
And he used three fundamental principles.
06:30
The first one was miniaturization.
06:32
The drip irrigation system
06:35
had to be small enough that a farmer only had
06:37
to risk a quarter acre,
06:39
even if he had two,
06:42
because it was too frightening, given all that he had at stake.
06:44
Second, it had to be extremely affordable.
06:47
In other words, that risk on the quarter acre
06:51
needed to be repaid in a single harvest,
06:54
or else they wouldn't take the risk.
06:57
And third, it had to be what Amitabha calls
06:59
infinitely expandable.
07:01
What I mean is with the profits from the first quarter acre,
07:03
the farmers could buy a second
07:06
and a third and a fourth.
07:08
As of today, IDE India, Amitabha's organization,
07:10
has sold over 300,000 farmers these systems
07:13
and has seen their yields and incomes
07:16
double or triple on average,
07:18
but this didn't happen overnight.
07:20
In fact, when you go back to the beginning,
07:23
there were no private investors
07:25
who would be willing to take a risk on building a new technology
07:27
for a market class that made under a dollar a day,
07:30
that were known to be some of the most risk-averse people on the planet
07:33
and that were working in one of the riskiest sectors, agriculture.
07:36
And so we needed grants. And he used significant grants
07:40
to research, to experiment, to fail,
07:43
to innovate and try again.
07:46
And when he had a prototype
07:48
and had a better understanding of how to market to farmers,
07:51
that's when patient capital could come in.
07:54
And we helped him build a company, for profit,
07:56
that would build on IDE's knowledge,
07:59
and start looking at sales and exports,
08:02
and be able to tap into other kinds of capital.
08:04
Secondarily, we wanted to see if we could export
08:08
this drip irrigation and bring it into other countries.
08:11
And so we met Dr. Sono Khangharani in Pakistan.
08:14
And while, again, you needed patience
08:18
to move a technology for the poor
08:20
in India into Pakistan,
08:22
just to get the permits,
08:24
over time we were able to start a company
08:26
with Dr. Sono, who runs a large
08:29
community development organization in the Thar Desert,
08:31
which is one of the remote and poorest areas of the country.
08:34
And though that company has just started,
08:37
our assumption is that there too
08:39
we'll see the impact on millions.
08:41
But drip irrigation isn't the only innovation.
08:44
We're starting to see these happening all around the world.
08:46
In Arusha, Tanzania, A to Z Textile Manufacturing
08:49
has worked in partnership with us,
08:54
with UNICEF, with the Global Fund,
08:56
to create a factory that now employs 7,000 people, mostly women.
08:58
And they produce 20 million lifesaving bednets
09:01
for Africans around the world.
09:03
Lifespring Hospital
09:07
is a joint venture between Acumen and the government of India
09:09
to bring quality, affordable maternal health care
09:11
to low-income women,
09:15
and it's been so successful that it's currently building
09:17
a new hospital every 35 days.
09:19
And 1298 Ambulances decided that it was going to
09:24
reinvent a completely broken industry,
09:27
building an ambulance service in Bombay
09:30
that would use the technology of Google Earth,
09:32
a sliding scale pricing system
09:35
so that all people could have access,
09:37
and a severe and public decision
09:39
not to engage in any form of corruption.
09:42
So that in the terrorist attacks of November
09:45
they were the first responder,
09:47
and are now beginning to scale, because of partnership.
09:49
They've just won four government contracts to build off their 100 ambulances,
09:51
and are one of the largest and most effective ambulance companies
09:55
in India.
09:59
This idea of scale is critical.
10:01
Because we're starting to see these enterprises
10:03
reach hundreds of thousands of people. All of the ones I discussed
10:05
have reached at least a quarter million people.
10:08
But that's obviously not enough.
10:10
And it's where the idea of partnership
10:12
becomes so important.
10:14
Whether it's by finding those innovations
10:16
that can access the capital markets,
10:18
government itself, or partner with major corporations,
10:20
there is unbelievable opportunity for innovation.
10:23
President Obama understands that.
10:27
He recently authorized the creation of a Social Innovation Fund
10:29
to focus on what works in this country,
10:32
and look at how we can scale it.
10:34
And I would submit that it's time to consider
10:36
a global innovation fund
10:39
that would find these entrepreneurs around the world
10:41
who really have innovations, not only for their country,
10:44
but ones that we can use in the developed world as well.
10:46
Invest financial assistance, but also management assistance.
10:49
And then measure the returns,
10:53
both from a financial perspective
10:55
and from a social impact perspective.
10:57
When we think about new approaches to aid,
11:00
it's impossible not to talk about Pakistan.
11:03
We've had a rocky relationship with that country
11:07
and, in all fairness,
11:09
the United States has not always been a very reliable partner.
11:11
But again I would say that this is our moment
11:14
for extraordinary things to happen.
11:18
And if we take that notion of a global innovation fund,
11:20
we could use this time to invest
11:23
not directly in government, though we would have government's blessing,
11:26
nor in international experts,
11:29
but in the many existing entrepreneurs
11:32
and civil society leaders
11:35
who already are building wonderful innovations
11:37
that are reaching people all across the country.
11:41
People like Rashani Zafar,
11:43
who created one of the largest microfinance banks in the country,
11:45
and is a real role model for women inside and outside the country.
11:48
And Tasneem Siddiqui, who developed a way
11:52
called incremental housing,
11:54
where he has moved 40,000 slum dwellers
11:56
into safe, affordable community housing.
11:58
Educational initiatives like DIL and The Citizen Foundation
12:01
that are building schools across the country.
12:04
It's not hyperbole
12:07
to say that these civil society institutions
12:09
and these social entrepreneurs
12:11
are building real alternatives to the Taliban.
12:13
I've invested in Pakistan for over seven years now,
12:16
and those of you who've also worked there
12:19
can attest that Pakistanis are an incredibly hard working population,
12:21
and there is a fierce upward mobility in their very nature.
12:25
President Kennedy said that
12:30
those who make peaceful revolution impossible
12:32
make violent revolution inevitable.
12:36
I would say that the converse is true.
12:39
That these social leaders
12:41
who really are looking at innovation
12:43
and extending opportunity
12:45
to the 70 percent of Pakistanis who make less than two dollars a day,
12:47
provide real pathways to hope.
12:50
And as we think about how we construct aid for Pakistan,
12:53
while we need to strengthen the judiciary,
12:56
build greater stability,
12:59
we also need to think about lifting those leaders
13:01
who can be role models for the rest of the world.
13:04
On one of my last visits to Pakistan,
13:08
I asked Dr. Sono if he would take me
13:10
to see some of the drip irrigation in the Thar Desert.
13:12
And we left Karachi one morning before dawn.
13:15
It was about 115 degrees.
13:18
And we drove for eight hours
13:20
along this moonscape-like landscape
13:22
with very little color, lots of heat,
13:25
very little discussion, because we were exhausted.
13:28
And finally, at the end of the journey,
13:30
I could see this thin little yellow line across the horizon.
13:32
And as we got closer, its significance became apparent.
13:36
That there in the desert
13:39
was a field of sunflowers growing seven feet tall.
13:41
Because one of the poorest farmers on Earth
13:44
had gotten access to a technology
13:46
that had allowed him to change his own life.
13:49
His name was Raja,
13:52
and he had kind, twinkly hazel eyes
13:54
and warm expressive hands
13:56
that reminded me of my father.
13:59
And he said it was the first dry season
14:01
in his entire life that he hadn't taken
14:03
his 12 children and 50 grandchildren
14:06
on a two day journey across the desert
14:08
to work as day laborers at a commercial farm
14:11
for about 50 cents a day.
14:13
Because he was building these crops.
14:15
And with the money he earned he could stay this year.
14:17
And for the first time ever in three generations,
14:20
his children would go to school.
14:23
We asked him if he would send his daughters as well as his sons.
14:26
And he said, "Of course I will.
14:29
Because I don't want them discriminated against anymore."
14:31
When we think about solutions to poverty,
14:36
we cannot deny individuals
14:38
their fundamental dignity.
14:40
Because at the end of the day,
14:42
dignity is more important to the human spirit than wealth.
14:44
And what's exciting is to see so many entrepreneurs across sectors
14:47
who are building innovations that recognize
14:51
that what people want is freedom
14:54
and choice and opportunity.
14:56
Because that is where dignity really starts.
14:58
Martin Luther King said that
15:01
love without power is anemic and sentimental,
15:03
and that power without love
15:08
is reckless and abusive.
15:10
Our generation has seen both approaches tried,
15:12
and often fail.
15:15
But I think our generation also might be the first
15:17
to have the courage to embrace both love and power.
15:20
For that is what we'll need, as we move forward
15:24
to dream and imagine what it will really take
15:27
to build a global economy that includes all of us,
15:30
and to finally extend that fundamental proposition
15:33
that all men are created equal to every human being on the planet.
15:36
The time for us to begin innovating
15:40
and looking for new solutions, a cross sector, is now.
15:43
I can only talk from my own experience,
15:47
but in eight years of running Acumen fund,
15:49
I've seen the power of patient capital.
15:53
Not only to inspire innovation and risk taking,
15:55
but to truly build systems that have created
16:00
more than 25,000 jobs
16:02
and delivered tens of millions of services and products
16:04
to some of the poorest people on the planet.
16:07
I know it works.
16:10
But I know that many other kinds of innovation also work.
16:12
And so I urge you, in whatever sector you work,
16:15
in whatever job you do,
16:18
to start thinking about how we might
16:20
build solutions that start
16:22
from the perspective of those we're trying to help.
16:25
Rather than what we think that they might need.
16:27
It will take embracing the world with both arms.
16:32
And it will take living with the spirit of generosity and accountability,
16:35
with a sense of integrity and perseverance.
16:40
And yet these are the very qualities
16:44
for which men and women have been honored
16:46
throughout the generations.
16:48
And there is so much good that we can do.
16:50
Just think of all those sunflowers in the desert.
16:53
Thank you.
16:56
(Applause)
16:58

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About the Speaker:

Jacqueline Novogratz - Social entrepreneur
Jacqueline Novogratz founded and leads Acumen, a nonprofit that takes a businesslike approach to improving the lives of the poor. In her book "The Blue Sweater" she tells stories from the philanthropy, which emphasizes sustainable bottom-up solutions over traditional top-down aid.

Why you should listen

One of the most innovative players shaping philanthropy today, Jacqueline Novogratz is redefining the way problems of poverty can be solved around the world. Drawing on her past experience in banking, microfinance and traditional philanthropy, Novogratz has become a leading proponent for financing entrepreneurs and enterprises that can bring affordable clean water, housing and healthcare, energy, agriculture and education to poor people so that they no longer have to depend on the disappointing results and lack of accountability seen in traditional charity and old-fashioned aid.

Acumen, which she founded in 2001, has an ambitious plan: to change the way the world tackles poverty. Indeed, Acumen has more in common with a venture capital fund than a typical nonprofit. Rather than handing out grants, Acumen invests in early stage companies and organizations that bring critical -- often life-altering -- products and services to the world's poor. Like VCs, Acumen offers not just money, but also infrastructure and management expertise. From drip-irrigation systems in India to high quality solar lighting solutions in East Africa to a low-cost mortgage program in Pakistan, Acumen's portfolio offers important case studies for entrepreneurial efforts aimed at the vastly underserved market of those making less than $4/day.

It's a fascinating model that's shaken up philanthropy and investment communities alike. Acumen manages more than $80 million in investments aimed at serving the poor. And most of their projects deliver stunning, inspiring results. Their success can be traced back to Novogratz herself, who possesses that rarest combination of business savvy and cultural sensitivity. In addition to seeking out sound business models, she places great importance on identifying solutions from within communities rather than imposing them from the outside. “People don't want handouts," Novogratz said at TEDGlobal 2005. "They want to make their own decisions, to solve their own problems.”

In her book, The Blue Sweater, she tells stories from the new philanthropy, which emphasizes sustainable bottom-up solutions over traditional top-down aid.

More profile about the speaker
Jacqueline Novogratz | Speaker | TED.com