Matthew Forti and Stephanie Hanson:
The recent explosion of interest in impact investing has generated much talk about breaking the shackles of the traditional philanthropic model. The concept seems appealing — incremental investment enters the “social impact” market in the form of below-market loans or equity, incenting mission-driven organizations to become self-sustaining. But is that realistic when you’re serving the poorest of the poor?
One Acre Fund (a nonprofit where Matthew is on the board and Stephanie on the staff) serves 135,000 of the poorest smallholder farmers in East Africa, on average doubling the profits they generate from farming. We care deeply about the bottom line, and earned income from our farmers is our primary funding source. At the same time, grant support enables us to innovate, grow faster, and stay focused on the bottom of the pyramid. Both are critical….
Depriving organizations like ours of grant funding, and pushing them to take on debt instead, could have the immediate consequence of forcing nonprofits to “go upmarket.” There’s nothing wrong with providing services to a farmer with 10 acres of land and a herd of livestock. It’s certainly easier than serving the hardest-to-reach farmers. But the greatest potential for social impact lies with those hard-working farmers at the bottom of the pyramid, where One Acre Fund’s model produces enough income for farmers to eliminate meal-skipping and invest in education, housing, and other productive assets.
Are social impact and focus on a bottom line at odds? Yes, when impact investors push mission-driven organizations to focus too much on financial return. But no, if we acknowledge that the optimal capital structure for organizations serving the poorest individuals may be a mix of earned income and donations.