Partnerships Through a Market-Based Approach
Authoredy by Haley Jordahl
Throughout the past decade, market-based approaches have emerged as important components of any program attempting to ameliorate domestic or international poverty at the household level. These solutions come in all shapes and sizes, from micro-loans to enhanced market linkages for small-scale enterprises; however, advocates of a market-based approach to development generally view market integration as a key building block of economic opportunity, and therefore a primary factor in the eradication of poverty.
The past several years have seen the adoption of innovative market-based strategies for socioeconomic advancement in a variety of exciting areas. Non-profit aid organizations have embraced the approach, incorporating market solutions into most economic development programs. Simultaneously, government agencies have provided support to these efforts; corporate actors also play an increasingly relevant role in domestic and international development. This tripartite confluence of interest surrounding market-based solutions to poverty is exciting; it not only enhances the level of available support to the poor, but also provides exciting opportunities for programmatic partnership.
Developing the Market-based Approach: Reevaluating the Poor
Overarching belief in the importance of market inclusion to an individual or community’s socioeconomic development did not occur quickly. Instead, it has been a slow process of reexamining the characteristics and assets of the domestic and international poor. C. K. Prahalad’s The Fortune at the Bottom of the Pyramid, identifies the so-called “bottom of the pyramid,” or poorest 5th of a society, as a latent business opportunity as well as potential capitalist class. Prahalad advises non- and for-profit entities to view the poor as a profitable growth opportunity requiring highly innovative strategies to both catalyze and tap.
Today, participants in all economic sectors are adjusting their perceptions regarding the needs and capacities of the poor. Where many for-profit firms once viewed the poor as a lost business opportunity, increasingly they see marketing to the needs of the poor as a profitable endeavor. Similarly, active corporate social responsibility policy is now a norm. This shift in perception benefits market-based strategy, in particular microfinance; major banks, from India’s dominant ICICI to our own Washington Trust, are increasingly willing to view micro-lending as a possibility for profit. Large-scale corporations are enhancing their involvement in the sector; as an example, Whole Foods supports community-based microfinance organizations in Latin America, Africa, and Asia through its Whole Planet Foundation.
Simultaneously, the non-profit sector has shifted its understanding of the poor to view them as entrepreneurial, rather than simply needy. Traditionally aid-based non-profits have started to shift toward a market-based outlook intent on transforming the global poor into a self-sufficient, economically integrated group. This shift is apparent on both a large and small scale; World Vision, an international development organization with a $2 billion budget has embraced market-based strategies through refined economic development programs and a microfinance arm, Visionfund . Conversely, community-based microfinance operations like CGF have exploded domestically and globally to fulfill the financial needs of the poor.
A steady trend toward market-based solutions to poverty from both the non- and for-profit sectors, and supported by government agencies, is exciting. The increasing similarity in ideology and interest between sectors typically assumed as inherently diverse offers vast opportunity for collaboration to benefit the poor. Inter-sector partnership is increasingly vital, for through coordination non- and for-profit entities can leverage diverse programmatic skills. These partnerships are also catalytic; in Prahalad’s words, “collaboration between the poor, civil society organizations, governments, and large firms can create the largest and fastest growing markets in the world. ”
What does this mean for the Capital Good Fund?
For microfinance organizations like the Capital Good Fund, the broad-based acceptance of market-based poverty-reduction strategies offers opportunity for growth and development. As economic integration is increasingly seen as the most viable solution to poverty, MFIs gain further legitimacy as important and constructive tools.
More importantly, however, are the amplified resources available to MFIs as market-based approaches to development become a component of non- and for-profit sector activity. MFIs are increasingly able to leverage diverse resources through a variety of partnerships; in Prahalad’s study of ICICI’s role in the Indian microfinance sector, the commercial bank depended on the “infrastructure and relationships that MFIs and NGOs [had] in place to deliver banking services to the rural poor. ” Similarly, CGF benefits from the resources of its community partners, from the technical assistance offered by Washington Trust to the access to clientele provided by International Institute of Rhode Island (IIRI). CGF continues to grow through the development of innovative partnerships.
Building on Change
Market-based solutions to poverty are relatively innovative, but do not appear to be purely a short-term trend. Rather, they are the most sensible option, for only by building the capacity of the poor to be independently profitable can poverty be reduced. Market-based solutions, more fundamentally, allow for a synergy between social actors, combining the potential of the non- and for-profit sectors for positive change. For CGF, this trend amplifies opportunity, enhancing our opportunities to leverage a diverse array of resources, and therefore, to grow.
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