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Social innovation’s toll: Experimenting with vulnerable communities

By: Jared Proudfoot, Coco Lim, and Dan Waldron
  • Blog

Content Warning: This post contains mention of suicide. If you need support, please seek assistance through available resources.  

Social innovators – inclusive of investors like Acumen and the entrepreneurs we fund – walk a fine line. We invest in early-stage companies to address problems of poverty, but to do that our investees must work closely with vulnerable people. Every day we grapple with tough questions as we work to build a world based on dignity: Are we creating bold and innovative solutions to solve problems of poverty? Or are we actually exposing the defenseless to more risk and precarity, under the guise of progress? Although we are well intentioned, we must consistently work to innovate and experiment without causing harm. 

The world is facing enormous challenges. Nearly half of our planet’s population lives on less than $6.85 per day. Over the next six years, low-income countries are expected to pay nearly half a billion dollars every day in interest and debt repayments, meaning less money for public services and social programs. The compounding effects of climate change on top of poverty disproportionately affect vulnerable communities. 

Experimentation is desperately necessary to confront these intractable problems. But experimentation is risky. People living in poverty are already exposed to enough challenges; social innovators need to be careful not to add another burden. 

The High Stakes of Social Innovation

A full three quarters of Acumen’s investees fail to become financially sustainable, deeply impactful, or both. And when those companies fail, we know that the people we are ultimately trying to help can be negatively impacted: forfeiting access to a helpful product or service, losing a job, or facing financial repercussions. We’ve seen two scenarios where social innovation is particularly at risk of harming the people we are trying to serve:

Building untested, unproven markets: When we talk about building markets, we envision three characteristics: new categories of goods and services designed for low-income customers, multiple companies equitably competing in affordability and quality, and responsiveness to customer demands. ​​In the off-grid solar market, which Acumen has been investing in for more than 15 years, customers now have more options and prices have come down. But an explosion of innovative payment models between 2015 and 2020 exposed vulnerabilities in their monitoring, leading to predatory lending practices that harmed hundreds. Other attempts to build markets have resulted in unlawful land dispossession masked as the “green transition” and compromised user privacy in the name of “financial inclusion,” to name a few. Acumen and other impact investors pride ourselves on investing in risky, hard-to-reach markets, where capital rarely flows, but people living in poverty should not be the ones to bear the burden when those risks do not pay off.

Scale at all costs: As we’ve seen in microfinance, when companies lack the right combination of culture, incentives, and safeguards, low-income borrowers can be misled on terms, agree to contracts without understanding their full implications, and wind up defaulting or paying a fortune in added fees. In India, irresponsible lending and aggressive collections practices led directly to the suicide of multiple borrowers. In Acumen’s own portfolio, one asset finance company repossessed hundreds of assets when the company and the board failed to monitor the portfolio quality of a rapidly expanding operation. Scale is important, but it must never come at the cost of an individual’s dignity – or in extreme examples, their life.

These cases are not indicative of social innovation; they represent a fraction of a fraction of the customers who have seen positive impacts. But that doesn’t matter; helpful intentions are not enough. As we push for more innovation and investment in businesses that serve people living in poverty, we must also become more diligent and creative in how we can minimize and reapportion risk. 

Protecting the Vulnerable

We see four main ways to take more risk as investors while shifting risk away from vulnerable communities: 

Model Innovation: Many social enterprises are built on selling directly to customers, but products like solar home systems or refrigerators can be expensive, making consumer financing a requisite to accessibility. Alternative approaches can minimize risk to the household. For example, SokoFresh offers access to a critical asset, such as cooling, as a service to smallholder farmers, instead of requiring them to purchase the equipment. This shared infrastructure and access-as-a-service approach reduces repayment risk for customers. 

Regulation: Consumer protection principles can help improve industries and shield customers from predatory practices. In response to the growing off-grid solar market and increasing credit-driven businesses, the Global Off-Grid Lighting Association (GOGLA) adopted a Consumer Protection Code, then strengthened it with a set of core principles and grant funding to build up companies’ capacity.

Normalize Payment for Impact: Access to Patient Capital, powered by philanthropy, can enable social enterprises to experiment and innovate while shouldering some of the inherent risks, ultimately benefiting the end-customers by ensuring the stability and sustainability of the enterprises serving them. It took Ziqitza Health Limited more than 5 years to develop an emergency medical care model that worked universally, because that is how long it took to build up trust with government payors. 

Radical Listening: Building trust, deepening connection, and hearing community-led solutions through tools such as Lean Data surveys with organizations like 60 Decibels can nip issues in the bud early on. This approach allows investors to better understand customer needs and concerns, minimizing risks associated with customer dissatisfaction or harm. Key impact failures highlighted in our Failing Forward report were only recognized when we listened to customers sharing about their experience.

The Dignity of Risk

Every person, regardless of their economic circumstances, should have the autonomy and opportunity to make choices and take risks in their lives. Embracing the dignity of risk – a concept that arose in Sweden in the 1960s for people with intellectual disabilities – means acknowledging that people living in poverty have the right to take risks and make their own choices, which can include investing in a solar dehydrator, refrigerator, or new farming techniques

We’ve seen these risks pay off with higher incomes and improved quality of life for 500 million people and counting. Yet that does not change the fundamental imbalance in power: those who can afford to experiment are not the ones being experimented on. The deeper the pockets, the more cushioned the landing. But many people living in poverty do not have access to a parachute. 

As we persist in taking risks and acknowledge that failure is an inevitable part of social innovation, we must balance the dignity of risk with the protection from harm. It is our dual responsibility to minimize harm and maximize hope for the communities we are dedicated to serving across the globe. That’s how we will safely impact the next half-a-billion lives.