In search of PSD’s “holy grail”

This page in:

The “holy grail” for those working in PSD is the scalable and sustainable business model that engages the poor while delivering social and developmental outcomes. Finding the PSD grail will potentially empower large numbers of poor men and women to find their own way out of poverty as well as generating, on a commercial basis, socially desirable goods and services. But there have been many false trails in the quest for the PSD grail. Among them are supply chain development initiatives that remain external to the economic lives of the poor, and heavily subsidized models that engage the poor but have limited prospects for wider replication, scaling or longer term sustainability.

Occasionally something comes along that captures our imagination and seems to offer a glimpse of the elusive grail. Mohammed Yunus' recent speech on social business at IFC was a widely reported example. Another similar but smaller event was more quietly inspirational. Harold Rosen, IFC’s former in-house serial entrepreneur and inspiration behind many of the IFC’s small and medium enterprise interventions, returned to IFC to discuss the performance of his Grassroots Business Fund (GBF), which was spun off from IFC in 2008.  

GBF- described by Harold as ”a genetic splice of IFC”- invests in a market niche that is critical to engaging the base of the pyramid, but which large financial institutions currently find too costly and risky to deal with themselves. This niche is up-and-coming social enterprises – or Grassroots Business Organisations (GBOs) - that are perhaps 40-80% of the way to reaching full commercial sustainability. These grassroots enterprises function as intermediaries enabling impacts on the poor in a cost effective way.

Source: Grassroots Business Fund

In its first year GBF made $2.7 million of investments in nine GBOs and five projects involving would-be investees, reaching a total of around 350,000 beneficiaries. This is a strong start, and as GBF develops it will provide fresh perspectives on some familiar constraints. Will GBF be able to find the quantity and quality of GBO intermediaries required to overcome the formidable barrier of the transactions costs required to reach large numbers of poor people? What is the scale of technical assistance required to make would-be intermediaries investable? Is investment and technical assistance to individual GBOs enough? Or, are other complementary systemic interventions needed to build a “market ecosystem” around social enterprise in the same way that, say, CGAP has helped develop the microfinance industry? Will “smart” or results-based subsidies be needed for GBOs to attain the required economies of scale within base of the pyramid markets? GBF’s results and experience will provide critical directional indicators on the quest for PSD’s holy grail.

Join the Conversation

The content of this field is kept private and will not be shown publicly
Remaining characters: 1000