Philanthropy: Charity alone not the answer in tackling poverty

Cooking begins at 4:30 in the morning in this industrial kitchen in the southern Indian city of Hyderabad. Workers cook thousands of kilograms of rice, curry and vegetables in giant steel pots, filling the room with steam and the sound of clanging metal. They stir curry with paddles the size of oars. Like clockwork, the food is loaded on to trucks by 7:30am and delivered to 150,000 children in Hyderabad’s schools.

To combat India’s notoriously high malnutrition rates, the government launched a national programme in 2001 to give free meals in schools. This “mid-day meal programme” is no panacea for India’s daunting social problems. But it is credited with at least lifting school enrolment 10-20 per cent in some areas and giving millions of children one good meal a day. “To my mind it’s a starting point,” said Manoj Kumar, chief executive of Naandi.

The government supplies the food but the programme’s success depends on local implementation. Naandi, a non-profit organisation based in Hyderabad, runs huge kitchens in four states that feed 1m children. With meticulous precision, Naandi transforms enormous volumes of food into meals that are still hot when they reach schools.

This level of efficiency is not to be taken for granted in India, especially when it involves perishable goods easily sold on the black market. But it is fitting for Naandi, which was founded by industrialists who expected the non-profit to be as efficient and accountable as a leading company.

Naandi was created in 1999 by wealthy overseas Indians who wanted to give back to their home state. It was later backed by leaders in India’s automotive, pharmaceutical and IT sectors. In 2001, Naandi made a shift from distributing money to implementing its own programmes in water, education, health and nutrition.

Other new models of philanthropy are even more closely linked to the business world. Last year, the Soros Economic Development Fund, Google’s philanthropic arm, and the Omidyar Network unveiled a $17m fund to invest in small and medium enterprises (SMEs) in India.

SMEs are an important engine for economic growth and job creation but are sorely lacking in India due, in part, to a lack of the financing needed to scale up. Reuben Abraham, senior adviser to the fund based in Hyderabad, met with George Soros in 2006 and said the billionaire financier “was intrigued by SMEs”.

The fund looks beyond India’s traditional investment sectors of IT and telecoms to invest between $500,000 and $3.5m in a variety of neglected but essential sectors, such as urban waste disposal and worker training for emerging industries such as retail, hospitality and healthcare.

“Every inefficiency you see in the country is a potential way to make money,” said Mr Abraham.

Pierre Omidyar, the billionaire founder of eBay, in 2004 started the Omidyar Network, a hybrid organisation that makes grants as well as for-profit investment.

Mr Omidyar began thinking about the social impact that eBay was having on millions of users and wondering about “other businesses where social impact is integral to the business model,” said Wendy Conway, spokesperson for Omidyar Network. “We’ve recognised there are a lot more tools to making the world a better place.”

In addition to the SME fund, Omidyar Network has invested or given grants to several entities that focus on India, including Unitus, an advisory that nurtures microfinance institutions; Comat, a network of computer centres that provides education and access to government documents; and Endeavor, an organisation that mentors entrepreneurs.

The New York-based Acumen Fund is another social venture fund that invests in companies with a positive social impact through grants, loans and equity. Acumen guides the fledgling companies and tracks their performance using business metrics.

In India, its investments include D.Light, a solar lantern company; Drishtee, a network of computer centres that provide education and other services; and WaterHealth International, a company that makes clean water systems for rural India, among others.

Acumen is backed by a group of investors who provide “patient capital” and do not necessarily expect returns, said Jacqueline Novogratz, chief executive of Acumen. ”These are people who have a lot of wealth who want to give philanthropically but want to explore other ways of being engaged.”

According to Acumen, charity alone is not the answer in tackling poverty, nor is business. But great potential lies in the intersection of the two.

The seed of Acumen was planted in the 1980s in Rwanda where Ms Novogratz had founded a microfinance institution. She stumbled upon a honey factory and saw there were “real jobs”.

“Microfinance is great but Africa needs jobs. But most people are not entrepreneurs, most are trying to survive,” said Ms Novogratz. “I thought, ‘I’m either going to run a big factory or create a fund to help institutions employ people and provide services’.”

Acumen is just seven years old, but its investments are already bearing fruit. A to Z Textile Mills, a Tanzanian maker of bed nets that help prevent malaria, received a loan of $325,000 from Acumen in 2002. Its bed net production jumped from about 105,000 each year to 10m today and the factory employs more than 5,000 people.

“This is a world where the rich are getting richer and the poor are getting poorer,” said Ms Novogratz. “We need creative approaches to reinvigorate capitalism and makes it more inclusive.”

By Amy Yee in New Delhi: Copyright The Financial Times Limited 2009