Unprecedented technological capabilities combined with unlimited human creativity have given us tremendous power to take on intractable problems like poverty, unemployment, disease, and environmental degradation. Our challenge is to translate this extraordinary potential into meaningful change ~ Muhammad Yunus
Today’s global challenges – climate change, inequality, unemployment, and diseases – require philanthropy to take a 21st century approach to investing in solutions that work. Modern philanthropy has an opportunity to drive social impact through cutting edge channels by shifting to a new mindset, one that is focused on outcomes and long-term systemic solutions and implemented through an entrepreneurial approach. By setting clear targets for the results it wants to achieve without prescribing the approach or methodology to get there, philanthropy can catalyze innovation in the social sector to enable and accelerate systemic change.
To begin, we need to agree on what we mean by an “outcome.” What does an “outcome” look like? For example, a child who makes fewer emergency room visits because government pays providers for helping children stay healthy and not simply for treating symptoms. That is an outcome. Or, an unemployed person who finds stable work because investors paid for the program that actually placed people in jobs rather than just merely supporting individuals while they look for work. That is an outcome. Focusing on achieving outcomes leads to solutions and new learning that can generate smarter investments.
A new approach will allow philanthropy to better assess what and who is needed to drive social impact. How can philanthropy, in this global environment, seed, test, and scale innovative and potentially life-changing ideas? Philanthropic capital has been critical in creating markets for the poor, ensuring access to basic good and services, and fostering greater inclusion in local and global markets. Despite this, more remains to be done and innovation is essential to meeting the needs of the millions who are still left behind and to address the growing inequality gap.
How can philanthropy achieve impact at scale? Here are five strategies to consider:
Pursue a Portfolio Approach for Social Impact
Modern philanthropy can advance the achievement of results by taking a portfolio approach to its investments – designating a portion of a portfolio for each of three categories: innovative and creative approaches; approaches that have shown promise, but need more testing; and the growth and scale of effective solutions. Within portfolios, philanthropy can reward more entrepreneurial approaches to public-private partnerships, cutting-edge technology, cross-sector data, and civic engagement. And it can leverage a modern toolkit including social impact bonds and other innovative financing mechanisms, impact investing, and outcomes-focused partnerships with civil society, government, and industry. An entrepreneurial approach and a solutions-oriented mindset will require adaptability, flexibility, empowered learning, and iteration across sectors. It will also mean taking the biggest risk of all – letting go of things that don’t work.
Promote Innovative Financing for Social Impact
The greatest challenge for many organizations that want to prove new ideas is capital. While this need has largely been met through philanthropic grants and some investments, philanthropy needs to invest in new financing mechanisms to leverage both grant dollars and investment capital for impact. These innovative financing models should better leverage both public and private capital, while also ensuring inclusion and equitable distribution. There are some promising models being tested with the public, private, and non-profit sectors – instruments such as Development Impact Bonds (DIB), Social Impact Bonds (SIB), and investment approaches such as Impact Investing are underway in the US and internationally.
Impact bonds leverage private capital to achieve a clear social outcome. This outcome is usually to improve social service delivery by allowing providers the freedom to experiment and test innovative approaches, and adapt in real-time to lessons learned while staying focused on results. The first DIB was launched in Rajastan, India, to improve the educational outcomes of girls. The DIB was a partnership between two foundations, a non-profit and the Indian government, with the risk being born by the private sector. If the non-profit can deliver on promised outcomes – more girls staying in school and achieving an education — the government can take these lessons and apply the learning more broadly in its policies. In this case, the philanthropy took the risk to test an intervention, reducing the risk for government.
Another entrepreneurial approach is impact investing. Generally defined as investments made in companies, organizations, or funds, impact investments are made with the explicit intention of achieving social and environmental impact alongside a financial return. These investments create new markets usually at the base of the pyramid (BoP) with a mix of philanthropic and investment capital. These markets include funds, such as Elevar Equity, that invest in entrepreneurs around the world who serve disconnected populations, as well as businesses, such as Bridges International Academies, that provide private, affordable, quality education for only $5/month. Both models are finding ways for the markets to work for the world’s poorest citizens and for much-needed philanthropic capital to get started and to succeed.
Leverage Technology for Social Good
Improving the lives of people of the ‘missing billion’ will require Philanthropreneurship: Entrepreneurial approaches in philanthropy that leverage philanthropic resources, advancements in technology, and cross sector partnership to drive sustainable and scalable change. Of these technologies, mobile has huge potential market and non-market opportunities. Yet, we have not even tapped 1% of its economic and social potential. With over 7 billion mobile devices, the mobile phone has connected the disconnected; it is being used for financial transactions, health care, and education. Philanthropreneurship led to smart investments in Mobile money systems, like M-PESA, that are banking the unbanked. Mobile data platforms such as Magpi are ensuring better and smarter data collection and analysis and (AG NAME) creating direct marketplaces connecting buyer and farmers to cut out the middle man and increase incomes for farmers.
Build Effective Partnerships
We need to do more. We don’t just need a few successes, we need to see a marketplace emerging that is continuously testing, iterating and refining new tools, technologies, and approaches to philanthropy. This will take creative partnerships on behalf of the business community, greater civil society engagement, and active leadership and participation by philanthropy. Philanthropy is a key ingredient to developing these partnerships and building trust. We should imagine a future that creates scalable platforms to reduce the costs for service delivery and helps better target interventions for prevention. Philanthropy can be a key partner with government to spur experiments and pilots that can lead to improved institutional structures and decision-making processes.
Engage Civil Society
Finally and most importantly, philanthropy needs to make sure that civil society is an integral part of these conversations. Communities know the challenges they face and they should be a part of the solution. Today’s technology provides a real opportunity for better civic engagement, which is a necessary component of social change. We know that when citizens are given a chance to participate – they do. Sites such as SeeClickFix allow citizens to send information about what is not working so governments can better optimize its responses. New ideas, such as participatory budgeting are engaging citizens to work with governments to make budget decisions that affect their communities. In each of these cases, citizens have engaged and are interested in making change for their communities. Foundation dollars are often the engine to spur these civic tech experiments that government can fund after seeing results. These new public-private models, fueled by philanthropy, are creating modern modes of civic engagement. Again, we need more.
Philanthropy is operating in a dynamic and complex environment and success will depend on its agility in responding to a rapidly changing world. Like the public and private sectors, philanthropy is hardly a monolith – community foundations, national foundations, and new entrants to the field all must adapt to align their missions, risk capital, and actual capacities to deliver better results. To meet these challenges, philanthropy at every level will need a start-up mindset that embraces cross-sector collaboration in generating sustainable and scalable solutions. There is no perfect formula, and there is no silver bullet. But philanthropy should be taking a more entrepreneurial approach to test, adopt, and adapt to new models of finance, effective uses of technology, and better civic engagement to achieve the ultimate goal – greater social impact.