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A Chat With Jacqueline Novogratz, CEO, Acumen Fund

April 23, 2010

Jacqueline_novogratz She started out as an investment banker who viewed herself as a "citizen of the world" and ended up as an outspoken proponent of "patient capital" as the solution to the problems of global poverty. Along the way, Jacqueline Novogratz helped to pioneer microfinance in Rwanda, picked up an MBA at Stanford, spent half a dozen years at the Rockefeller Foundation, and founded the Acumen Fund, one of the first venture capital funds to focus its investments on the "base of the pyramid" (BoP) -- the billions of poor without access to clean water, reliable health services, or formal housing options.

Recently, PND spoke with Novogratz about the problems with traditional development aid, the importance of moral imagination, and the opportunities for change created by the global financial crisis.

Philanthropy News Digest: Much of Acumen's work and investments around the world are focused on poverty alleviation. Traditionally, that's been the purview of international aid programs and large NGOs. You've been fairly outspoken in your criticism of such approaches. What don't traditional aid experts get about poverty?

Jacqueline Novogratz: I guess I'd say that too often they see the poor as objects rather than as human beings who want to make their own decisions and control their own destinies. They're not great at understanding the situation on the ground from the perspective of the poor and then coming up with solutions that allow people to be active participants in improving their own lives.

PND: You've also been critical of traditional aid approaches for creating what you refer to as a "charity mentality" among donors and grantees. How does Acumen's approach differ from more traditional development approaches?

JN: In a number of ways. First, we don't give out handouts, we invest in people. Second, we measure what we do in terms of both financial return as well as social impact. Third, we discuss and report back on our failures as much as our successes. Fourth, we don't consider ourselves as having "donors." At Acumen, we have investors, although they don't receive a monetary return on their investments in the traditional sense of that term. Instead, they invest and become stakeholders in what we do because they want to share in our successes and learn from our failures.

PND: Is there such thing as a typical Acumen investment? And if not, can you give us an example or two of an investment that exemplifies what it is you are trying to accomplish?

JN: We have five portfolios — health, water, housing, agriculture, and energy. For all our investments, we measure impact in terms of both social and financial returns. We also gather breakthrough insights that help us develop a library of knowledge about how to build businesses that can serve individuals earning less than four dollars a day. One of our investments, WaterHealth International in India, builds community water systems that use cutting-edge technology to provide clean water to rural villages at very low cost. They've built two hundred and eighty-five systems in just the past few years and have a customer base of two hundred and fifty thousand individual families purchasing clean drinking water. And now they're expanding all over India by partnering with government.

PND: How does the Acumen approach differ from microfinance?

JN: The biggest difference is that our average investment is anywhere from $250,000 to $2 million, whereas the average microfinance loan might be more like $50. And because we're looking to invest in companies rather than individuals, we feel there is significant potential to leverage our investments. For every dollar Acumen invests, we typically see another four or five dollars go into markets that otherwise would not be served by our co-investors.

PND: What's your take on the recent criticism of micro-lending sites such as Kiva.org? Is it justified? And what do you think is driving that criticism?

JN: In some ways, success is driving the criticism. When I started working in microfinance in Rwanda in 1986, the big conversation was whether we should charge interest at all. Today, in contrast, the conversation is about what's a fair interest rate. Twelve percent? Twenty? In some cases we've seen effective rates as high as 90 percent. So, in some ways I see it less as criticism and more as about serious inquiry into a field that has become well established and is reaching hundreds of millions of people. We're all trying to get better and improve our understanding of what works and what doesn't.

PND: Are there situations, in your view, in which traditional development aid is warranted?

JN: Absolutely. When you're looking at a big public health problem like, say, vaccinating everyone in a region or country, market approaches may not be enough. In those kinds of situations, aid can be a powerful lever. We've seen some really effective examples of aid being used to create incentives and bring government in as a partner. Again, I'm not saying all aid is bad. In fact, I think there's a real opportunity right now in terms of looking at how we can re-imagine capitalism as well as how we should re-imagine aid. It's not a question of throwing either system out but of looking at how we reinvent and redesign them for the twenty-first century.


PND: One of the recurring metaphors in your book is built on the concept of bridges and bridging. Do you see your investments, and your work in the broader sense, as somehow bridging existing divides — between rich and poor, public and private, profit and nonprofit?

JN: Oh, yes — absolutely. We're seeing several of our investments begin to partner with government to scale — where private innovation starts driving public change. We also see constantly the ways in which our world is interconnected. In January, I gave a talk about my book The Blue Sweater for a book club of a hundred readers in the Kibera slum community in Nairobi. The questions were the same that I get at book readings in New York City — people are fundamentally interested in what it takes to help people improve their own lives.

PND: To what degree is poverty in developing countries a gender-driven condition?

JN: I wouldn't say it's gender driven, but I do think when you're looking at poverty in the developing world, inevitably you are looking at women, particularly and increasingly in urban areas, where women often are single heads of households. It's not unusual to find that 75 percent of all people who are poor in urban areas are women and children.

PND: At this point, trying to address poverty by investing in women and girls is fairly uncontroversial. You make it clear in the book, however, that in a place like pre-genocide Rwanda, investments in women and girls were often seen as a threat to traditional social structures. How much have attitudes toward the empowerment of women changed over the last decade or two?

JN: I think we're making progress. There was a good op-ed article by Maureen Dowd in the New York Times recently in which she noted the slowly changing attitudes toward women in Saudi Arabia. Similarly, in parts of Pakistan, including up in the north, in the Punjab and the Northwest frontier region, more and more people are insisting that their daughters be allowed to go to school. The trend is moving in the right direction. There are exceptions, of course, which makes this work all the more difficult, but the overall trend is positive.

PND: Do you think anything could derail that progress?

JN: No. There will be setbacks — these are tumultuous times, after all — but I think the broad trend is going to be hard to derail.

PND: You were in the States at the time of the Rwandan genocide, but you eventually returned to Rwanda. What did you learn from conversations with friends and other survivors of the genocide there about forgiveness and the human spirit?

JN: First and fundamentally, that the single principle we have to cherish and nourish most is the principle that all human beings are created equal — not in terms of intelligence or wealth, but in terms of our common humanity. And that we owe each other the freedom to pursue our own path and make our own choices.

The second, and it's very much related to the first, is that one's dignity is more important than just about anything else. When people are stripped of their dignity, when they feel they have no choice, that's when it becomes easy to prey on their fears. What's extraordinary about Rwanda is the incredible capacity of Rwandans to forgive. After the horror of the genocide, tens of thousands Rwandans had to find a way to live side-by-side with people who had murdered their spouse or children or relatives. Of course, there was no other place for people to go. But Rwandans made the decision — very deliberately, I think — to find it in their heart to coexist and try to forgive. It wasn't easy, and it still isn't for many people, but it's the most remarkable part of the story. It's been crucial to the rebuilding of that society, and humbling for all of us who have watched that rebuilding from afar.

PND: Do you think the genocide in Rwanda created, in a perverse way, an opening for civil society and civil society institutions that didn't exist pre-genocide?

JN: I do. We know from the experience of other nations that a major psychological shock or trauma often creates the impetus for needed change, and I think we saw that in Rwanda. You saw a need for healing, a need for finding a way to move forward. And civil society organizations, grassroots organizations sprung up to fill that need. In part as a result of the genocide, you saw a country becoming aware of something it had never imagined previously.

PND: In the book, you talk about the importance of moral imagination. Is that something that's innate in humans, or is it something that needs to be learned and cultivated?

JN: It's definitely something that's learned. I was lucky to grow up in a family that really did see everybody as equal, and that had a huge impact on my worldview. As a young girl, I absolutely related to the idea of social justice. Of course, the concept of moral imagination goes deeper, in that it embraces a natural curiosity about people and really trying to understand others' perspectives and worldview. It's natural for someone with a well-developed moral imagination to put themselves in others' shoes, and in my view that ability is something that can be developed and honed over time.

PND: Referring to your grad school days at Stanford, you write in the book that "your professors and fellow students were comfortable speaking about power and money. Love and dignity, on the other hand, were words people were often embarrassed to say out loud, or so it felt. There had to be a way to combine the power, rigor, and discipline of the marketplace with the compassion I'd seen in so many programs aimed at the very poor. Capitalism's future, it seemed to me then — and much more so now — rests on as much creativity and room for inclusion as it can tolerate." Given the mess some capitalists have made of the global economy, do you still believe that? And do you still think markets are a critical component of the solution to global poverty and other social problems?

JN: I believe it more than ever. I even hint in the book that I think the system bears not only deep examination but reinvention, because it hasn't been working — and neither has straight charity. We need solutions imbued with more patience than the market and more discipline than typical charity approaches. We can't be so arrogant as to think the market is the only solution, yet we need to recognize that it can be a listening device and can create efficiencies. By integrating both approaches, we can have a much more reasoned, thoughtful, and intentional discussion about what is needed to solve these problems.

PND: Is there room in the international development field for more Acumen Funds?

JN: Absolutely. I'd love to see more Acumen Funds! When you look at the billions, if not trillions, that have gone into development over the last decade and then imagine what might happen if we took even a small percentage of that and, rather than investing it in top-down approaches which treat low-income people as passive recipients of charity, invested it in organizations that treat them as change agents who want to be empowered to improve their own lives, we could make an enormous difference.

PND: And solve some of these problems in our lifetime?

JN: That's what I'm banking on.

-- Mitch Nauffts

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Posted by Charlotte Dion  |   April 29, 2010 at 11:30 AM

Inspiring interview -thanks for posting. I recently joined the Acumen online community and am curious about what Acumen uses for success indicators, given the ongoing debate about how to design realistic yet useful metrics for nonprofits.

Posted by Renee Westmoreland  |   April 30, 2010 at 11:05 AM

Hi Charlotte. Thanks for the kind words. Your question about success indicators is a good one, and the folks at Acumen appear to have thought a lot about the subject. According to the Acumen Web site, Acumen compares each investment it makes with "a real or hypothetical charitable option" using an internally developed framework called the Best Available Charitable Option (BACO); tracks and measures investees across geographies and industries using a Web-based portfolio data management system called Pulse; and, in the area of benchmarking, has worked to develop a set of industry standards called the Impact Reporting and Investment Standards (IRIS). Whew. Lot more detail here: http://www.acumenfund.org/investments/investment-performance.html

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