I am a mathematician. I like to see constitutional models of organisational systems defined
so they are transparently verifiable and not smudged with all sorts of classifications that
social and CSR funds have used over recent years
Can we make a list of models that are 100% verifiable with exact specifications?
The one that is simplest to me is Dr Yunus’ Social Business Model which is the subject
of his book “creating a world without poverty, social business, future of capitalism”. This
is a constituitional model that has been tried and tested in bangladesh for 25 year now
with probably over 500 verifiable cases, as well as being the core model of microcredit
the way Dr Yunus and his 4 founders originated this form of microbanking owned by
the poorest in the community.
Are there any other named models where an ordinary panel of concerned people could
look at an organisation and say yes it is or no it isnt applying the particular named model?
Kevin, thank you for articulating the issue of social investment so clearly.
I do agree that there is confusion still, and I believe the issue comes from trying to include too many parameters in the equation. And I agree with the previous comment that we should look at what Muhammad Yunus has done.
This is what I am trying to do, and why I have been pushing the concept of an Entrepreneur Commons (http://www.entrepreneurcommons.org).
The issue I see is one of measurement:
- how do you measure a good investment from a not-so-good investment when you have to balance between a rate of return and other things like impact of community (and what is that?)? Should you be happy with a 3x return if other criteria are met?
The existing investment models from Angels or VCs are not working in this context: with equity deals all you know is that you will only get the answer later on, at some unspecified time and definitely after the fact when it is too late to do anything about it.
It may work for a few true believers who want to invest in social businesses, but certainly not for the larger audience of investors who want to do good but would like some clarity on what to expect.
The answer is to do debt instead of equity, as microfinance is doing:
- investors know when they are getting their money back
- they know what return they can expect from the investment
- best of all, success is measured by the fact that the loan has been paid off, which is as simple to measure as it gets.
The investment decision then becomes:
- is this social business I am looking at something that I want to be part of? this applies to anything that would bring good to the community, and everyone is free to decide what their area of interest is
- is the rate of return something I am comfortable given the level of risk? this can be benchmarked against regular markets return.
Because we are talking social investment, the Entrepreneur Commons is hybrid structure, in line again with what Muhammad Yunus recommends:
- a regular investment fund, whose purpose is to generate profit for investors so that they can come back for more
- a not-for-profit organization, to manage the fund. The not-for-profit is a social network of entrepreneurs providing mentorship in addition to loans, so that the value generated is not spent on anything else than what the investments that are targeting or their investors.
Because Entrepreneur Commons is for social entrepreneurs in developed countries, and because entrepreneurs are typically very individualistic people who are focused on their business more than anything else, you also need “glue” to make sure the social network is healthy. So the Entrepreneur Commons includes a Mutual Guarantee Funds, which creates an incentive for entrepreneurs to work with each others, and which also mitigates the risk for investors: the mutual guarantee fund covers 50% of the default, so that both investors and entrepreneurs have an interest in minimizing defaults.
Entrepreneur Commons will be presenting at Socap2008, on 10/14/08 at 2:30pm room 355C, so feel free to check us out to get more info…
COMMENTS
BY chris macrae
ON October 2, 2008 03:17 PM
I am a mathematician. I like to see constitutional models of organisational systems defined
so they are transparently verifiable and not smudged with all sorts of classifications that
social and CSR funds have used over recent years
Can we make a list of models that are 100% verifiable with exact specifications?
The one that is simplest to me is Dr Yunus’ Social Business Model which is the subject
of his book “creating a world without poverty, social business, future of capitalism”. This
is a constituitional model that has been tried and tested in bangladesh for 25 year now
with probably over 500 verifiable cases, as well as being the core model of microcredit
the way Dr Yunus and his 4 founders originated this form of microbanking owned by
the poorest in the community.
Are there any other named models where an ordinary panel of concerned people could
look at an organisation and say yes it is or no it isnt applying the particular named model?
BY mdangear
ON October 4, 2008 01:13 PM
Kevin, thank you for articulating the issue of social investment so clearly.
I do agree that there is confusion still, and I believe the issue comes from trying to include too many parameters in the equation. And I agree with the previous comment that we should look at what Muhammad Yunus has done.
This is what I am trying to do, and why I have been pushing the concept of an Entrepreneur Commons (http://www.entrepreneurcommons.org).
The issue I see is one of measurement:
- how do you measure a good investment from a not-so-good investment when you have to balance between a rate of return and other things like impact of community (and what is that?)? Should you be happy with a 3x return if other criteria are met?
The existing investment models from Angels or VCs are not working in this context: with equity deals all you know is that you will only get the answer later on, at some unspecified time and definitely after the fact when it is too late to do anything about it.
It may work for a few true believers who want to invest in social businesses, but certainly not for the larger audience of investors who want to do good but would like some clarity on what to expect.
The answer is to do debt instead of equity, as microfinance is doing:
- investors know when they are getting their money back
- they know what return they can expect from the investment
- best of all, success is measured by the fact that the loan has been paid off, which is as simple to measure as it gets.
The investment decision then becomes:
- is this social business I am looking at something that I want to be part of? this applies to anything that would bring good to the community, and everyone is free to decide what their area of interest is
- is the rate of return something I am comfortable given the level of risk? this can be benchmarked against regular markets return.
Because we are talking social investment, the Entrepreneur Commons is hybrid structure, in line again with what Muhammad Yunus recommends:
- a regular investment fund, whose purpose is to generate profit for investors so that they can come back for more
- a not-for-profit organization, to manage the fund. The not-for-profit is a social network of entrepreneurs providing mentorship in addition to loans, so that the value generated is not spent on anything else than what the investments that are targeting or their investors.
Because Entrepreneur Commons is for social entrepreneurs in developed countries, and because entrepreneurs are typically very individualistic people who are focused on their business more than anything else, you also need “glue” to make sure the social network is healthy. So the Entrepreneur Commons includes a Mutual Guarantee Funds, which creates an incentive for entrepreneurs to work with each others, and which also mitigates the risk for investors: the mutual guarantee fund covers 50% of the default, so that both investors and entrepreneurs have an interest in minimizing defaults.
Entrepreneur Commons will be presenting at Socap2008, on 10/14/08 at 2:30pm room 355C, so feel free to check us out to get more info…