Session Title:
Measuring Success at the Base of the Pyramid
Measuring Success at the Base of the Pyramid
Date of talk or publication:
2005
2005
Speaker Name / Title:
David Porteous
David Porteous
Organization:
Bankable Frontier Associates
Bankable Frontier Associates
Description:
Businesses face growing pressure to combine profit maximizing behavior with concern for social impact in a so-called “double bottom line approach.” Since Adam Smith, the two bottom lines have been seen as aligned in theory, but often in tension in practice. Recently, C.K. Prahalad demonstrated that the tension might not be inevitable to the extent that a positive social impact on the poor can emerge as a by-product of the normal profit seeking activities of firms in low-income markets. Private businesses that seek to integrate profit maximization with achieving a positive social impact are nevertheless usually thought to be dynamically unstable, stunted in their growth, and vulnerable to single-minded competitors on one hand, and diluted in their social impact on the other.
Three privately owned development banks on three continents—Plantersbank (Philippines), ShoreBank (United States), and Triodos Bank (Netherlands)—have from the outset explicitly sought to have a positive social impact in underserved banking niches in their respective markets and also produce at least positive real returns for shareholders. This approach, in which the two intentions are blended, might be termed a “strong double bottom line.” Conventional measures of financial and social outcomes are used to show that these banks have achieved positive social impact and also surpassed their peers in financial performance. Being long established (with an average life of around 30 years), these banks cannot be described as unsustainable. Nor, with balance sheets that range from $600 million to in excess of $2 billion and recent rapid growth in revenues and assets, can they be described as small or stunted. Because they are active in three very different regions of the world, they also cannot be dismissed as local anomalies. Together, they make a compelling case that the apparently empty zone between profit maximizing businesses and entities that seek to have a social impact is not only habitable, but can even be hospitable.
The success of these banks is attributed in part to conventional factors such as economies of scale and market specialization. But reaching scale has required careful management of the tensions inherent in the private development banking approach. Moreover, specialization has taken the form of building new markets rather than competing only in existing ones. Sustaining factors have included a stable, committed shareholder coalition, the guiding influence of founders that has suffused the organizational culture, and careful management of growth. Two of the three banks are active mainly in developed countries, albeit in historically underserved segments of these markets. The third serves small and medium enterprises in a developing country rather than the global poor directly. The paradigm of private development banking demonstrated by these three banks is nevertheless highly relevant to reaching the global poor. Building sustainable and robust retail financial service markets in developing countries will in many cases require a deliberate double bottom line approach if it is to be successful and sustainable. Privately owned and run development banks such as these three are well placed to do this.
Businesses face growing pressure to combine profit maximizing behavior with concern for social impact in a so-called “double bottom line approach.” Since Adam Smith, the two bottom lines have been seen as aligned in theory, but often in tension in practice. Recently, C.K. Prahalad demonstrated that the tension might not be inevitable to the extent that a positive social impact on the poor can emerge as a by-product of the normal profit seeking activities of firms in low-income markets. Private businesses that seek to integrate profit maximization with achieving a positive social impact are nevertheless usually thought to be dynamically unstable, stunted in their growth, and vulnerable to single-minded competitors on one hand, and diluted in their social impact on the other.
Three privately owned development banks on three continents—Plantersbank (Philippines), ShoreBank (United States), and Triodos Bank (Netherlands)—have from the outset explicitly sought to have a positive social impact in underserved banking niches in their respective markets and also produce at least positive real returns for shareholders. This approach, in which the two intentions are blended, might be termed a “strong double bottom line.” Conventional measures of financial and social outcomes are used to show that these banks have achieved positive social impact and also surpassed their peers in financial performance. Being long established (with an average life of around 30 years), these banks cannot be described as unsustainable. Nor, with balance sheets that range from $600 million to in excess of $2 billion and recent rapid growth in revenues and assets, can they be described as small or stunted. Because they are active in three very different regions of the world, they also cannot be dismissed as local anomalies. Together, they make a compelling case that the apparently empty zone between profit maximizing businesses and entities that seek to have a social impact is not only habitable, but can even be hospitable.
The success of these banks is attributed in part to conventional factors such as economies of scale and market specialization. But reaching scale has required careful management of the tensions inherent in the private development banking approach. Moreover, specialization has taken the form of building new markets rather than competing only in existing ones. Sustaining factors have included a stable, committed shareholder coalition, the guiding influence of founders that has suffused the organizational culture, and careful management of growth. Two of the three banks are active mainly in developed countries, albeit in historically underserved segments of these markets. The third serves small and medium enterprises in a developing country rather than the global poor directly. The paradigm of private development banking demonstrated by these three banks is nevertheless highly relevant to reaching the global poor. Building sustainable and robust retail financial service markets in developing countries will in many cases require a deliberate double bottom line approach if it is to be successful and sustainable. Privately owned and run development banks such as these three are well placed to do this.