The Role of Partnership in Poverty Eradication: A Myth or Reality?

by Dr. Jeremiah Koshal
Research Fellow, Regent Center for Entrepreneurship

Studies have attempted to identify the correlates linked to poverty mobility. People move out of poverty because they have significantly better endowments in terms of land and livestock, more educated heads of household, and have better roads and better rainfall. In other words, those moving out of poverty tend to be able to rely on good endowments in terms of assets such as land and livestock, human capital, and infrastructure. While factors such as these allow people to move out of poverty, shocks and risk make and keep them poor (Narayan & Petesch, 2007).

Most poor countries do not attract a larger capital inflow because of perceived high risk of investment. One useful indicator of investor perceptions of risk is a survey done by the magazine Institutional Investor that scores the perceived risk for each country on a scale of 1 to 100, 100 being the maximum safety appropriate for investment while 1 is the least safety appropriate. Risk ratings such as this show up as significant in statistical explanations of private investment. Unsurprisingly, high risk discourages investment (Collier, 2007).

Social Venture Capital (SVC) is being used today to combat poverty because it does not operate like a typical ‘profit-minting machine’, where the risks have to be methodically calculated. Social enterprises are either for profit or non-profit social venture fund investing in Small and Medium Enterprises (SMEs) in developing countries. They pursue financial, social, spiritual and environmental returns. Social enterprises do not require the same rate of financial return since they also look for social, spiritual and environmental returns, even though they also have to be profitable in order to remain sustainable.

A number of these social enterprises are faith-based and the experience is that faith-based investors are more likely to accept a lower financial return in exchange for higher social returns. They are more able to align their financial interest with their social responsibilities. A growing number of successful entrepreneurs with a philanthropic attitude are also allocating a small percentage of their total portfolio to this form of investment.

Case studies, where partnerships between social venture capitalists and local communities are bearing fruits are evident. In Kuzuko Game Reserve (http://www.tbnetwork.org/; http://www.kuzuko.com/), neighboring Kruger National Park in South Africa, the community has entered into a partnership with South Africa National Parks, Legacy Hotels, the Disability Employment Concern Trust, South African Development Bank and the World Bank in order to develop a 39,000 acre game reserve on community land. The game reserve will offer a safari experience to tourists in a 5-star lodge managed by Legacy Hotels, a leading hotel group in Southern Africa. When it opens, the game reserve will employ 100 people directly. This project combines conservation, job creation, social and spiritual transformation in a region of 70% adult unemployment. With partner support, new commercially-viable business opportunities are currently being assessed with the aim of creating further jobs in the area.

Brains Group (http://www.brainsdirect.com/), a software outsourcing business in Moldova, but with a marketing office in the UK, is employing 100 technical people. These 100 people learning new skills and how businesses are run. They are also taught issues of integrity.

Spot Taxis in Bangalore, India, is the largest taxi franchise in Bangalore with 230 taxis. Each driver is able to own their own vehicles with a structured loan over a 3-4 year period. They all have in-car radios and are directed by a control room using a computer system which tracks their location. Some enterprising drivers now own more than one vehicle.

Thus, the role of partnership between social enterprises and local communities should be encouraged, as remarkable things can happen at both the micro and macro levels. This is more critical since most social enterprises encourage a strong work ethic, a spirit of others-centered, where the needs of local communities are pursued a long side profit. In this case, profit becomes a by-product of the process instead of an end by itself.

References
Collier, P. (2007). The bottom billion: Why the poorest countries are falling and what can be done about it. New York: Oxford.
Narayan, D., and Petesch, P. (Editors) (2007). Moving out of poverty: Cross-disciplinary perspectives on mobility. Washington, D.C.: The International Bank for Reconstruction and Development/The World Bank.
Tan, K. (2003, October). Enterprise against poverty: The case for social venture capital.