Tuesday, June 25, 2013

End poverty by giving the poor cash?

Chris Blattman

If you've been following my recent posts and papers on giving cash to the poor, three things that may interest you:

First, we've put out a 3-page policy note with the World Bank on one Uganda cash transfer program. Here is an IPA policy note on a second study, of cash transfers to poor women in Uganda.

Second, today the New York Times Economix blog posted excerpts of an interview with me about both experiments on giving cash to the poor.

Last, in a strange coincidence of timing, yesterday the FAI blog posted excepts of a similar interview from last year.

The post End poverty by giving the poor cash? appeared first on Chris Blattman.

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Henk J.Th. Van Stokkom

Putting the 'fun' back into fundraising

Global development news, comment and analysis | guardian.co.uk

Chugging – street fundraising – turns members of the public into prey, releasing adrenalin that triggers fight or flight instincts. It'll take a little more imagination to create behaviour change

It's a beautiful day and as I walk down a busy street, I'm feeling good. I'm in control. But then I get the feeling that I'm being watched, that I've been caught in a predator's gaze. Looking around, I see her – a chugger. I begin to weigh up my options (walk faster; pretend to be on the phone; find another way across) when the worst thing possible happens. We make eye contact. Now confrontation is inevitable, as are the lies I must invariably tell to get out of this situation:

"Sorry, do you have two minutes?"

"No", I answer.

Her senses are sharp and she can tell I am uncertain, so presses on: "Have you heard of Unicef?," she asks.

"Yes".

She flips open her folder and an African child's eyes stare up at me: "Have you considered supporting us?"

"Ehh, yes, I'm a member," I say without thinking.

"We don't have members," she shoots back.

Defeated, I mutter: "Ahh. Ok ... I gave some money once …"

I'm sinking now, my internal peace eroding as I begin to feel morally inferior. The chugger represents the good in the world, and has a UN logo to prove it. I represent the moral decline of my society. We have become such selfish bastards that we don't even want to stop and listen, let alone care about anyone else's troubles.

City dwellers across the global north can identify with that experience. Our days are littered with these interactions in which we have just three options: the first, say you support other NGOs and feel bad it's a weak lie. Second, show interest in the subject matter but not in giving funds, and hope the chugger loses interest. Or third, surrender your bank details. You'll feel good about none of the above because you've simply done what was expected of you. However you slice it, you lose.

So what can we learn from this? For me chugging – or street fundraising – represents three things that are wrong with much of development communications. 1. It presents a negative and pessimistic world view, and mostly uses negative and stereotypical imagery. 2. It triggers action out of guilt, and does not motivate or educate. 3. It lacks creativity.

Indeed, a lot of development communications is about pursuing target audiences with negative pictures, and with messages that tell people what to do or think. An exaggerated version of many fundraising messages says: "The world is falling apart, you should care, we (with the help of some celebrities) are on the case, but we need your money."

Of course fundraising is necessary, but there is a flipside to this type of messaging: the repeated negative portrayal of communities does not make us care more, but less. It makes us feel bad and we stick our heads in the sand. The reason? Being confronted by a chugger releases adrenaline, and adrenaline is not what you want to stimulate if you want to motivate people to give, think or change behaviour.

What is needed instead is the release of endorphins. When we laugh and when our curiosity is sparked, endorphins makes us relax, and help lower our personal defences. Humour and creative curiosity also invites people to think for themselves. I don't like it when people tell me what to think, so why should I ask others to?

Last year my organisation, SAIH, made a music video 'Africa for Norway', a spoof that questioned development messaging. The success of that video helped me realise that although an issue is really important, it doesn't have to be wrapped up in a serious way to make its point. Breaking free from conventional communication techniques isn't always easy but the benefits can be great.

Development communicators can learn a thing or two from the fun theory, an initiative started by Volkswagen and based on the idea that making something fun is the easiest way to change people's behaviour for the better. For example, instead of saying: "Work out more," a 'piano staircase' was installed at a metro station in Sweden. Doing so increased the use of the stairs by 66% .

There is reason to be optimistic that NGOs are starting to get and use this approach. In Spain a concept called 'Bet for food', developed to support the growing use of food banks in Catalonia, capitalised on the competitive passion of football fans and led to 210,000 kilos of food collected in just one month.

US NGO, Mama Hope, has also developed 'Stop the Pity' campaign, a fundraising strategy based on dignity and fun. They have had massive outreach while turning negative stereotypes of Africans on their head. New and different approaches create curiosity, which is important in order to entice people to learn more about the issues.

And the 'fun theory' concept can be extending from fundraising to campaigning. It's a simple logic: if we're smart, there will be no need to hunt people down in the streets. They will come to us.

Sindre Edland-Gryt is communication advisor at, Norwegian Students' and Academics' International Assistance Fund (SAIH). He tweets as @sindreolav

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The Best and Worst Way to Pick a Charity

Ken's Commentary
Experts have noted that a one dimensional focus on nonprofit finances, if not supplemented by other information, can lead a donor/social investor to make the wrong decision as to which nonprofit they support. Except in extreme cases, we think that is correct. In addition, experts have noted that an overemphasis on overhead is misleading. We agree and always have. We further believe that the most critical dimension in evaluating a nonprofit has to do with achieving meaningful results. It is in that spirit that we jointly signed on to today's press release about overhead, with the BBB Wise Giving Alliance and Guidestar. On the other hand, we do not agree with those that say there is no place for overhead in evaluating charities.

That is why we think that many of Dan Pallotta's arguments are extreme and "dead wrong." I have more detailed explanations of my many disagreements with him here, here, here and here. Specifically on the issue of overhead, show me a nonprofit that uses 70% of its funds for overhead and I predict with a great deal of certainty that it is an organization that is either clueless or focused on lining someone's pockets rather than effectively serving others. People may disagree on what the best metric of overhead should be, but to say overhead is irrelevant is to deny a useful indicator of where many thieves and scoundrels dwell. I have worked in enough nonprofits with unethical leaders to say without question that we need to get serious about their existence as more than a rarity (see the book Silence, by Gary Snyder).  As noted above, this is not meant to imply in any way that overhead is the only metric donors should consider, but rather that it is an important data point.

This is exactly why, for a number of years now, we have been working towards a three dimensional rating system (which we now call CN 3.0). Specifically, we believe the three dimensions that must be considered for a social investor to have the critical information needed to make a wise decision are the charity's: 
  1. Financial Health (CN 1.0 launched April 2002) – Is the nonprofit sustainable? Does it have robust financial strength to survive in good times and bad? Is the overhead not at the extreme end of the continuum?
  2. Accountability & Transparency (CN 2.0 launched September 2011) – Does the organization have ethical practices, good governance and transparency? Is it accountable to its constituents?
  3. Results Reporting (CN 3.0 methodology launched January 2013) – Can the organization supply information about meaningful and lasting change in the communities and lives of the people it serves? Can they show evidence that these changes are as a result of their efforts? Do they have systems and processes in place to effectively manage their performance?
Some question whether people who are "casual" (i.e. not super rich) investors, care about this sort of information. Our answer is proven by data. We had over 6 million visits to our site last year by donors seeking objective data on how they should invest an estimated $10 billion dollars of charitable gifts. That is with our existing, admittedly two dimensional rating system. Can you imagine the impact CN 3.0 will have on giving?

I believe that this is a critical battle for the very soul of the nonprofit sector. We MUST get past the notion that overhead is all that matters, while recognizing that efficiency and financial health is of critical importance in maintaining high performance and the best results for the long term. We MUST get past the notion of doing the "good work" with no accountability and transparency, because we know that charities without strong governance and ethical best practices are far more likely to have leadership problems. Once again, to maintain effective results we have to have these characteristics and policies in place. Finally, we MUST get past the idea that nonprofits are too complex or unique to be measured. I have seen it close up for years and it is not a pretty picture. The nonprofit sector must get its act together and make sure it is really helping provide meaningful and lasting change. It is life or death for many of those we serve whether charities are efficient, accountable, transparent and effective or not.
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Development Impact Bonds – a new business model for development?

Owen abroad

On June 5th we published for consultation a draft of our report on Development Impact Bonds, a new way of bringing together the public and private sector to invest in development.  The New York Times has an excellent explainer about the idea:

You are a health official in Uganda, and you're watching a crisis unfold. Your people have long suffered from epidemics of sleeping sickness, one of Africa's biggest killers. There is no vaccine and the only treatment is protracted and painful. Sleeping sickness, transmitted by the tsetse fly, is carried by cattle and also kills cattle, destroying the livelihoods of families who keep them.

… Governments and international aid donors sometimes like to call the work they do to improve people's lives "investing." Uganda's problem is an example. In a figurative sense, treating those cattle is an investment — a very good one. A small amount of money put in now will bring large rewards later. Of course, it's not literally an investment.

But what if it were?

What if this project were treated like a business startup? You'd get people to put up the money. If the "business" doesn't work, the investors are out of luck. But if it succeeds — if the cattle are treated and sprayed, and the gains are maintained — international donors would repay the investors with interest, using part of the money saved by reducing sleeping sickness. …

It is well worth reading in full.  (Ungated PDF here.)

Testing cattle for sleeping sickness

Development Impact Bonds are adapted from a Social Impact Bond which aims to reduce reoffending in Peterborough Prison. The British government has just released interim results for this pilot. The reconviction of former prisoners in the Peterborough pilot has been reduced by 6% over two years, compared to a national increase in reoffending of 16% over the same period.  

As my colleague Rita Perakis explains here, we don't yet know whether reoffending by former Peterborough prisoners is doing better than a comparable group in the rest of the population (the numbers above are raw totals, not adjusted for differences in the characteristics of the prisoners).  We will know early next year whether the Peterborough group is doing better than a carefully matched sample of the rest of the prison population. But in the meantime, the raw numbers are promising.

If the Peterborough pilot succeeds, it will be because the SIB partnership manages service delivery differently from normal government services.  Rita says:

 it is more flexible, data driven, and responsive; and it brings together services from different providers in the public, private and non-profit sectors to target the needs of individual clients. It is this new business model which seems to be producing better results; the point of the financial innovation is to enable this business model to be put in place, outside the inevitable limitations of government budgeting, contracting and performance management.

This is the key point. DIBS are a new business model, made possible by a new financial model. It is the better business model that appears to bring benefits for citizens and clients of the public services (and taxpayers). The financial innovation is important because it allows this to happen.

The Dutch Government published last week an evaluation of public private partnerships in developing countries which was underwhelmed by the evidence of success. Goals have been badly specified, outcomes and impact are not tracked, and the results are ambiguous.  Crucially, they say:

The rationale for relying on PPPs is mostly based on resource mobilization motives rather than for effectiveness reasons. … most PPPs are motivated for financial reasons in order to mobilize additional resources that enable the execution of large public programs. Few evaluation reports mention overcoming financial market failure and product/market risks as a motive for public engagement.

Our draft proposals on Development Impact Bonds address many of these shortcoming in other public-private partnerships.  The need to define and credibly measure impact is baked in to the entire model.  Furthermore, they are specifically not designed as some sort of financial alchemy or strategy for resource mobilisation. The Working Group proposals are specifically and explicitly about enabling governments, delivery organisations, civil society, firms and investors to work together more efficiently to produce social outcomes.

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Aligning Interests in Impact Investing

SSIR Opinion & Analysis

By Daniel Izzo

The structure of a traditional venture capital fund provides two sources of revenues to fund managers. The first is the management fee, which covers the costs of the team, the investment processes, and the monitoring of portfolio companies. It is calculated as a fraction of the total amount invested in the fund and is paid monthly to the management company. The second form of compensation is the carry cost. Early in the life of the fund, the manager and the investors agree on a minimum expected annual financial return. If the return is exceeded, a portion (usually about 20 percent) of the excess amount is due to fund managers as success fee.

This is a structure that has worked relatively well when the objective of the fund is solely financial return. There is a clear alignment of interests between investors and managers: Both sides want to maximize the financial return on investments. But in the case of impact investing, how do we ensure this alignment when impact metrics are also part of what we are trying to achieve?

Impact investments, of course, are made with the intention of generating positive social and/or environmental impact, beyond financial return. This is the exact motivation that made investors join our fund at Vox Capital; blending these two aspects was traditionally seen as irreconcilable. It became clear to us that a more traditional structure that rewarded our team based only on our financial return would not ensure the best alignment between investors and us (fund managers). For this alignment to happen, we needed to link our long-term incentive to the social impact that our fund's activities are generating.

A good example of this is Saútil, a Vox Capital portfolio company. Saútil was created to make it easier for people with no health insurance (75 percent of Brazilians) to access free services already provided by the public sector. The company geo-localized all the public health services providers in every Brazilian city so that the customer, using her ZIP code, could get information on where she should go and what documentation to carry to access a free medication, exam, or vaccination. To monetize the product, Saútil began selling, on a B2B model, a concierge service for blue-collar employees at large companies, who usually do not have a health plan. The product was so useful that insurance companies wanted to offer this same service to their high-income clients, thus reducing the number of claims and their costs.

Soon enough, it was clear to the management team that it was easier to sell to companies that serve high-income clients, compared to those that employ blue-collar workers. However, the intention of the entrepreneurs and their team (as well as Vox Capital's) while creating the company was to provide access to low-income clients—to reduce the gap on health care and services that we experience in Brazil. After much discussion, we decided to sell to high-income clients to guarantee the short-term financial results for the company, but to focus primarily on sales and product development for the bottom of the Brazilian pyramid—those who do not have access to a quality health plan. But then, how do you guarantee this mission lock on the long term? How do we guarantee that Vox Capital, as a member of the company's board, will always vote to serve the less-favored individuals?

The solution we found was to link part of our carry compensation to social impact metrics. That is, we will receive the full 20 percent success fee only if we deliver both the financial return and the social impact expected by investors. The mechanism works as follows: If the fund delivers beyond its benchmark financial return rate, we have access to the full carry compensation only if we also reach a certain level of impact. If we do not reach the minimum expected social impact level, our team is entitled to only half of the carry. At the same time, if the financial return is below its target, we are not entitled to any success fee, regardless of our social impact results, avoiding another potential conflict of interest: managers earning money, even when investors lose it.

The tool we are currently using for impact measurement is Global Impact Investing Rating System (GIIRS). Today, it is the most accepted and adopted methodology within the impact investing market worldwide. Of course, as with any other tool, it still has its limitations, and there is room for improvement. In this sense, and because it is such an important subject for us, we are also committed to helping improve GIIRS so that it increasingly reflects the full impact of our businesses. In fact, the GIIRS team has been consistently responsive to feedback provided by fund managers and investors as to improve their measurement methodology. As the impact-investing infrastructure continues to develop, we are open to adopting a new methodology if one proves more appropriate in the long run.

In a new and growing market like impact investing, it is important to ensure maximum alignment of interests among all players involved in its development. More traditional tools can and should be used, but small changes and adaptations are critical to guarantee that we are actually measuring what we intend to accomplish. It is essential that the structure described in this article is considered as a possible standard in the market. Only then, will impact investors be sure that they are supporting managers who are seeking the same goals. This is an important step in the maturation of the industry, which aims to transform the world for the better through its investments. To achieve that, I believe it is time to link the compensation of managers to social impact, the same way it is linked to financial return, to guarantee that everyone is truly accountable for delivering all the promises that impact investing is making.

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World’s Shortest Analyst Report

The Big Picture

 

 

CB Worth

 

Hat tip Mike P

 

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