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Tuesday
May262009

A free market approach to transforming international development

Drip Irrigation in Sri LankaWe have covered a number of emerging market-based approaches to charitable giving: p2p microfinance, social lending, and prediction markets.

Acumen offers another essentially free market solution to charity: patient capital. Integrating principles of investment banking into traditional donor-based charity, Acumen is seeking to transform the western world's approach to development.

The fund collects money from donors much as a traditional charitable outfit, but then rather than purchase food, mosquito nets, etc. it lends to or invests the funds in local ventures that provide broader social benefits such as internet cafes or irrigation companies.

This approach is much like the Kiva or Microplace model, but writ large. Rather than a p2p connection, Acumen enables direct entrepreneur lending on a much greater scale. Instead of helping a woman with a $500 loan to expand her small livestock business, like on Microplace, through Acumen, you can contribute to a $1.5 million investment in Mumbai to expand the city's ambulance fleet. Acumen also is painstaking in its analysis of exactly where the money goes and the social value that it brings.

In an interview with the Economist, founder Jacqueline Novogratz explains why she believes now is the time for this type of innovation in international development:

“The financial system is broken, yes, but so too is the aid system... a moment of great innovation [could be at hand]."

Ms. Novogratz here hits on the theme that we often try to promote: that while capitalism is currently in doubt, there are plenty of thriving examples of places where free market solutions are leading to plenty of social good.

Flickr credit: zumerzetbill

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