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The first set relate primarily to the role of donors
(including corporate foundations and philanthropy
programmes) who, because they control the
money, are critically important influences on what
issues IDC actors focus on and how they work.

1. Don’t give, invest

The core proposition is that donors should act less
like charities and more like investors. In part, this
means allocating more of available resources (such
as might be forthcoming from the ‘International
Finance Facility’ proposed by the UK government)
towards investment vehicles targeting the pro-poor
enterprise sector. However, more fundamentally we
also mean that when donors spend aid money
through their normal partners – government
agencies, NGOs, etc – the primary outcomes they
should be after are measurable impacts on the propoor
enterprise sector linked directly to the project
or activity they are funding.

a. Make it hurt

To facilitate this, donors could do a number of
things – some of which no doubt more progressive
donors are already doing. They could require
grantees to make real financial contributions from
their own funds to the project. Grant payments
could be phased against meeting performance
targets. Financial incentives could be built into
rewarding the grantee if the project exceeds its
enterprise targets (including awarding bonuses or
retaining any surplus). And the grantee could face
sanctions and be held accountable if it does not
deliver on what is promised – perhaps, for
example, by having to return a percentage of the
grant to the donor.

b. Do as I do

And just to demonstrate commitment, the donors
themselves could use their own internal incentive
structures to ensure staff and managers are
rewarded or held accountable for the performance
of their projects against what we would argue is
one of the few ‘bottom lines’ that should matter in
the fight against poverty – measurable growth
among pro-poor enterprises and increased benefits
flowing to poor people as a result.

These are clearly extreme steps for the donor
community, non-profits and civil servants and to be
sure even the Shell Foundation does not operate
entirely along these lines. And many objections
could be raised.61 But we offer them up in such
stark terms in order to encourage debate around
the following proposition.

c. Put the poor ‘customer’ in charge –
not the rich paymaster

Our hopeful assumption is that by striving towards
the ideal of being held accountable for achieving
measurable contributions to pro-poor enterprise
and sustainable livelihoods, donors and grantees
will be catalysed into becoming more enterprising,
innovative and efficient in their search for solutions
to poverty.

Why might this happen? Because this approach
tackles a costly (for the poor) contradiction at the
heart of the aid-poverty equation.

The ‘failure’ of many projects in our portfolio and
elsewhere can often be traced directly to the fact
that the project partners were not focused on best
meeting the needs of their real customers but were
responding to other incentives – including donor
agendas and their own professional interests (See
annex 2).

If one were to apply this ‘who’s the market/who’s
the customer’ filter to the aid-funded ‘output’ of
the IDC, especially that part of the IDC located
institutionally in the rich countries, we expect a
very large share of what is done (and certainly the
vast majority of what is studied and written) in the
interests of development, is primarily undertaken
to meet the agendas of the IDC itself rather than
the material interests of the poor.

So we are arguing – along with others such as
Easterly (2002) – that setting targets and incentives
for donors and other IDCs that are linked to
customer satisfaction (i.e. measurable success or
failure in pro-poor enterprise creation) should ensure
maximum effort is focused on delivering results
that matter (See annex 2).

The logic of the approach we are proposing is
simple. The challenges involved in actually
implementing it are obviously not. It requires
donors and recipients to think very differently
about how they do what they do.More importantly,
it would lead them to work within a risk–return
relationship and ‘consequence accountability’
structure similar to that which exists between an
investor and a start-up business, and between
shareholders and management – cultures that are
foreign to many donors and grantees.

Nevertheless, our experience and that of others
suggest it is possible to structure interventions and
incentives that powerfully and successfully focus
everyone’s attention on the end game of pro-poor
enterprise creation and we suggest the topic is
worthy of wider debate and consideration.

2. It’s not the (aid) money that matters

This proposition harks back to our arguments that
there will never be enough foreign ‘soft’ money to
allow pro-poor enterprise financing to go to scale
and thus the importance of getting local capital
into a lead role in this area.

As argued earlier, using ‘softer’ money from abroad
to invest in pro-poor enterprise can play an
important starter or demonstration role. And
clearly, in regions such as sub-Saharan Africa, it is
very important we do everything we can to
enhance investor confidence.

But our proposition is that the introduction of
pro-poor enterprise aid funding should from the
outset complement and catalyse the increasing
involvement of local capital and local suppliers of
business development services – not substitute for
them. It’s possible to do this and it can work as our
efforts and those of others in Uganda and South
Africa and those of S3IDF in India have shown.

3. Link MDG interventions, debt relief and
other macro-interventions to pro-poor
enterprise creation

We’re conscious that the share of available
resources and effort going to pro-poor enterprise
creation will always be limited. However pro-poor
interventions in other areas can be ‘calibrated’ to
help contribute to the enterprise objective without
detracting from their core objectives. Debt relief
conditions, the way aid financing is delivered and
various MDG programmes including the provision
of education, health care and clean water can relatively
easily incorporate pro-poor enterprise objectives
that do not have negative impacts elsewhere.

In the case of MDGs, this would range from
ensuring money spent on pro-poor service delivery
catalysed local enterprise growth through to the
application of enterprise or business thinking to
better ensure MDG plans delivered specific
measurable outcomes benefiting the most poor
people at least cost.

The same logic applies in relation to interventions
designed to tackle corruption or strengthening the
management capacities of local government. These
are very big problems in most poor countries and
the resources don’t exist to tackle them everywhere
at once. Interventions in these problems areas must
be prioritised.

So why not focus on those aspects of the generic
problems of corruption or capacity that most
inhibit the growth of enterprise? Entrepreneurs and
businesspeople can help governments and the IDC
map out the ‘value chain’ of activities and stages
where corruption or lack of government capacities
impinge on enterprise creation. Then, provided the
political commitment is present, intervention could
focus on tackling the most important blockages.

These are not backdoor strategies for the
privatisation of the delivery of poverty services or
the imposition of user fees. They are simply
suggestions that those designing MDG policies
and programmes be aware, competent and
incentivised to apply enterprise thinking to what
they are doing and to leverage their resources to
aid pro-poor enterprise creation.

There are probably some good examples of this
happening but as aid flows targeting MDGs
increase, many more opportunities will arise. Our
concern is that if enterprise thinking and objectives
are not mainstreamed now, these opportunities will
be ignored at great long-term cost to poor people.

4. Re-engineering the international
development supply chain

We argued and demonstrated earlier that in our
experience the presence of business DNA in our
partners – whether they were non-profit or forprofit
– was an important ingredient in the success
of pro-poor enterprise interventions. This
experience underpins our proposition that donors
should be considering the following options:

a. Transfer business DNA

The first is how they can best use their position
and resources to promote the transfusion of
business DNA and enterprise behaviour all along
the international development supply chain. The
examples given in Section 3 of our efforts on this
front related mostly to ‘front-line’ NGOs who are
traditionally donor-funded and operate in
development project mode, insulated from market
forces as it were.

Other parts of the development supply chain could
probably do with an injection of business DNA as
well. Most academics, policy makers, and development
agency professionals endeavouring to catalyse
pro-poor enterprise don’t have real business-based
experience to draw on. Their knowledge of how
markets operate and the problems faced by business
of all kinds is largely theoretical or conceptual.

Thus they operate on the basis of many partially
informed and often downright incorrect
assumptions about markets and enterprise. This
means the policies and interventions they design
and implement, with the best intentions, to
catalyse the efficient operation of markets or the
creation of enterprise just don’t work or don’t work
nearly well enough.

This mismatch between theory and practice,
between ‘talking the talk’ of markets and enterprise
and actually knowing how to ‘walk the walk’, are obviously not the sole reason why many enterpriseoriented
(and growth-oriented) policies and
interventions in poor countries haven’t worked as
well as intended. But there is a certain logic in the
argument that if we want policies and
interventions that help pro-poor enterprise grow, it
would be useful to be able to inject more
experience-based, business DNA into the project
and policy design process. It’s not easy62 but it can
be done and donors are perfectly positioned to
drive this process – perhaps even via new forms of
partnership with big business that would facilitate
the transfer of their business DNA into the
development supply chain (See annex 2).

b. Develop alternative sources of supply

The second option is to construct an ‘alternative’
development supply chain by working more extensively
and more directly with the for-profit sector
on devising and delivering pro-poor enterprise
interventions. Our experience is that the efficiency
of resource use is higher, the transaction and learning
costs lower and the going-to-scale opportunities
much greater than when trying to accomplish the
same thing with the non-profit sector.

c. Promote hybrids

A third route could be to use market principles to
encourage the emergence of financially viable,
hybrid ‘network business models’ capable of
delivering pro-poor services on a large scale.
Donors could facilitate the coming together of
private and non-profit entities into a new form of
hybrid ‘enterprise’ that could use smart subsidies
and commercial capital, best-practice business and
developmental skills, to deliver differentially priced
services to different segments of the poverty
market.

This is an approach the Shell Foundation is
piloting in the scale-up phase of its Breathing Space
programme in India and elsewhere, where the aim
is to achieve significant ‘market penetration’ of
cleaner stoves and fuels among poor household
‘markets’ that number in their millions.

The re-engineering of the development supply
chain along business lines is happening to a certain
extent as some donors and non-profits try to apply
business thinking to what they do.63 But these
business-like development entities and experiments
are still in the minority and largely peripheral to
the way most of the IDC is organised and
incentivised. We suggest therefore that whether
and how to introduce business principles and
business DNA into the mainstream IDC is a topic
worthy of further urgent debate.

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  6.3 Come Together: Enterprise solutions to poverty
  2.0 Introduction: Enterprise solutions to poverty
  1.0 Executive Summary: Enterprise solutions to poverty
  1.15 Building an employment agenda: Working Out of Poverty
  1.19 Building trust: Working Out of Poverty
  2.9 Conclusions: Working Out of Poverty
  1.4 Our experience: Working Out of Poverty
  1.9 Building local development through cooperatives: Working Out of Poverty
  1.0 Overview: Working Out of Poverty
  1.17 Building partnerships: Working Out of Poverty
  Moving Forward: International Financial Institutions
  4.0 Sustainable pro-poor growth and the governance of the labour market: Working Out of Poverty
  1.1 Our mandate: Working Out of Poverty
  5.8 Looking towards the future: Working Out of Poverty
  IV. Introduction - MICROFINANCE IN AFRICA: THE MODEL
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