Jacqueline Novogratz: A third way to think about aid

Clearly, we're living in a moment of crisis.

Arguably the financial markets have failed us

and the aid system is failing us,

and yet I stand firmly with the optimists

who believe that there has probably never been a more exciting moment to be alive.

Because of some of technologies we've been talking about.

Because of the resources, the skills,

and certainly the surge of talent we're seeing all around the world,

with the mindset to create change.

And we've got a president who sees himself as a global citizen,

who recognizes that no longer is there a single superpower,

but that we've got to engage in a different way with the world.

And by definition, every one of you who is in this room

must consider yourself a global soul,

a global citizen.

You work on the front lines. And you've seen the best and the worst

that human beings can do for one another and to one another.

And no matter what country you live or work in,

you've also seen the extraordinary things that individuals are capable of,

even in their most ordinariness.

Today there is a raging debate

as to how best we lift people out of poverty,

how best we release their energies.

On the one hand, we have people that say

the aid system is so broken we need to throw it out.

And on the other we have people who say

the problem is that we need more aid.

And what I want to talk about is something that compliments both systems.

We call it patient capital.

The critics point to the 500 billion dollars spent

in Africa since 1970

and say, and what do we have but environmental degradation

and incredible levels of poverty, rampant corruption?

They use Mobutu as metaphor.

And their policy prescription is to

make government more accountable,

focus on the capital markets,

invest, don't give anything away.

On the other side, as I said, there are those who say

the problem is that we need more money.

That when it comes to the rich, we'll bail out

and we'll hand a lot of aid,

but when it comes to our poor brethren,

we want little to do with it.

They point to the successes of aid:

the eradication of smallpox,

and the distribution of tens of millions

of malaria bed nets and antiretrovirals.

Both sides are right.

And the problem is that neither side is listening to the other.

Even more problematic, they're not listening to

poor people themselves.

After 25 years of working on issues of

poverty and innovation,

it's true that there are probably no more market-oriented

individuals on the planet

than low-income people.

They must navigate markets daily,

making micro-decisions, dozens and dozens,

to move their way through society,

and yet if a single catastrophic health problem

impacts their family,

they could be put back into poverty, sometimes for generations.

And so we need both the market

and we need aid.

Patient capital works between,

and tries to take the best of both.

It's money that's invested in entrepreneurs who know their communities

and are building solutions

to healthcare, water, housing, alternative energy,

thinking of low income people not as passive recipients of charity,

but as individual customers, consumers, clients,

people who want to make decisions in their own lives.

Patient capital requires that we have

incredible tolerance for risk,

a long time horizon in terms of allowing those

entrepreneurs time to experiment,

to use the market as the best listening device that we have,

and the expectation of below-market returns,

but outsized social impact.

It recognizes that the market has its limitation,

and so patient capital also works

with smart subsidy to extend the benefits of a global economy

to include all people.

Now, entrepreneurs need patient capital

for three reasons.

First, they tend to work in markets

where people make one, two, three dollars a day

and they are making all of their decisions within that income level.

Second, the geographies in which they work

have terrible infrastructure --

no roads to speak of, sporadic electricity

and high levels of corruption.

Third, they are often creating markets.

Even if you're bringing clean water

for the first time into rural villages, it is something new.

And so many low-income people

have seen so many failed promises broken

and seen so many quacks and sporadic medicines offered to them

that building trust takes a lot of time,

takes a lot of patience.

It also requires being connected to a lot of management assistance.

Not only to build the systems,

the business models that allow us

to reach low income people in a sustainable way,

but to connect those business

to other markets, to governments, to corporations --

real partnerships if we want to get to scale.

I want to share one story

about an innovation called drip irrigation.

In 2002 I met this incredible entrepreneur

named Amitabha Sadangi from India,

who'd been working for 20 years with some of the poorest farmers on the planet.

And he was expressing his frustration

that the aid market had bypassed low-income farmers altogether,

despite the fact that 200 million farmers

alone in India make under a dollar a day.

They were creating subsidies

either for large farms,

or they were giving inputs to the farmers

that they thought they should use, rather than

that the farmers wanted to use.

At the same time Amitabha was

obsessed with this drip irrigation technology

that had been invented in Israel.

It was a way of bringing small amounts of water

directly to the stalk of the plant.

And it could transform

swaths of desert land into fields of emerald green.

But the market also had bypassed low income farmers,

because these systems were both too expensive,

and they were constructed for fields that were too large.

The average small village farmer

works on two acres or less.

And so, Amitabha decided that he would take that innovation

and he would redesign it from the perspective

of the poor farmers themselves,

because he spent so many years listening to what they needed

not what he thought that they should have.

And he used three fundamental principles.

The first one was miniaturization.

The drip irrigation system

had to be small enough that a farmer only had

to risk a quarter acre,

even if he had two,

because it was too frightening, given all that he had at stake.

Second, it had to be extremely affordable.

In other words, that risk on the quarter acre

needed to be repaid in a single harvest,

or else they wouldn't take the risk.

And third, it had to be what Amitabha calls

infinitely expandable.

What I mean is with the profits from the first quarter acre,

the farmers could buy a second

and a third and a fourth.

As of today, IDE India, Amitabha's organization,

has sold over 300,000 farmers these systems

and has seen their yields and incomes

double or triple on average,

but this didn't happen overnight.

In fact, when you go back to the beginning,

there were no private investors

who would be willing to take a risk on building a new technology

for a market class that made under a dollar a day,

that were known to be some of the most risk-averse people on the planet

and that were working in one of the riskiest sectors, agriculture.

And so we needed grants. And he used significant grants

to research, to experiment, to fail,

to innovate and try again.

And when he had a prototype

and had a better understanding of how to market to farmers,

that's when patient capital could come in.

And we helped him build a company, for profit,

that would build on IDE's knowledge,

and start looking at sales and exports,

and be able to tap into other kinds of capital.

Secondarily, we wanted to see if we could export

this drip irrigation and bring it into other countries.

And so we met Dr. Sono Khangharani in Pakistan.

And while, again, you needed patience

to move a technology for the poor

in India into Pakistan,

just to get the permits,

over time we were able to start a company

with Dr. Sono, who runs a large

community development organization in the Thar Desert,

which is one of the remote and poorest areas of the country.

And though that company has just started,

our assumption is that there too

we'll see the impact on millions.

But drip irrigation isn't the only innovation.

We're starting to see these happening all around the world.

In Arusha, Tanzania, A to Z Textile Manufacturing

has worked in partnership with us,

with UNICEF, with the Global Fund,

to create a factory that now employs 7,000 people, mostly women.

And they produce 20 million lifesaving bednets

for Africans around the world.

Lifespring Hospital

is a joint venture between Acumen and the government of India

to bring quality, affordable maternal health care

to low-income women,

and it's been so successful that it's currently building

a new hospital every 35 days.

And 1298 Ambulances decided that it was going to

reinvent a completely broken industry,

building an ambulance service in Bombay

that would use the technology of Google Earth,

a sliding scale pricing system

so that all people could have access,

and a severe and public decision

not to engage in any form of corruption.

So that in the terrorist attacks of November

they were the first responder,

and are now beginning to scale, because of partnership.

They've just won four government contracts to build off their 100 ambulances,

and are one of the largest and most effective ambulance companies

in India.

This idea of scale is critical.

Because we're starting to see these enterprises

reach hundreds of thousands of people. All of the ones I discussed

have reached at least a quarter million people.

But that's obviously not enough.

And it's where the idea of partnership

becomes so important.

Whether it's by finding those innovations

that can access the capital markets,

government itself, or partner with major corporations,

there is unbelievable opportunity for innovation.

President Obama understands that.

He recently authorized the creation of a Social Innovation Fund

to focus on what works in this country,

and look at how we can scale it.

And I would submit that it's time to consider

a global innovation fund

that would find these entrepreneurs around the world

who really have innovations, not only for their country,

but ones that we can use in the developed world as well.

Invest financial assistance, but also management assistance.

And then measure the returns,

both from a financial perspective

and from a social impact perspective.

When we think about new approaches to aid,

it's impossible not to talk about Pakistan.

We've had a rocky relationship with that country

and, in all fairness,

the United States has not always been a very reliable partner.

But again I would say that this is our moment

for extraordinary things to happen.

And if we take that notion of a global innovation fund,

we could use this time to invest

not directly in government, though we would have government's blessing,

nor in international experts,

but in the many existing entrepreneurs

and civil society leaders

who already are building wonderful innovations

that are reaching people all across the country.

People like Rashani Zafar,

who created one of the largest microfinance banks in the country,

and is a real role model for women inside and outside the country.

And Tasneem Siddiqui, who developed a way

called incremental housing,

where he has moved 40,000 slum dwellers

into safe, affordable community housing.

Educational initiatives like DIL and The Citizen Foundation

that are building schools across the country.

It's not hyperbole

to say that these civil society institutions

and these social entrepreneurs

are building real alternatives to the Taliban.

I've invested in Pakistan for over seven years now,

and those of you who've also worked there

can attest that Pakistanis are an incredibly hard working population,

and there is a fierce upward mobility in their very nature.

President Kennedy said that

those who make peaceful revolution impossible

make violent revolution inevitable.

I would say that the converse is true.

That these social leaders

who really are looking at innovation

and extending opportunity

to the 70 percent of Pakistanis who make less than two dollars a day,

provide real pathways to hope.

And as we think about how we construct aid for Pakistan,

while we need to strengthen the judiciary,

build greater stability,

we also need to think about lifting those leaders

who can be role models for the rest of the world.

On one of my last visits to Pakistan,

I asked Dr. Sono if he would take me

to see some of the drip irrigation in the Thar Desert.

And we left Karachi one morning before dawn.

It was about 115 degrees.

And we drove for eight hours

along this moonscape-like landscape

with very little color, lots of heat,

very little discussion, because we were exhausted.

And finally, at the end of the journey,

I could see this thin little yellow line across the horizon.

And as we got closer, its significance became apparent.

That there in the desert

was a field of sunflowers growing seven feet tall.

Because one of the poorest farmers on Earth

had gotten access to a technology

that had allowed him to change his own life.

His name was Raja,

and he had kind, twinkly hazel eyes

and warm expressive hands

that reminded me of my father.

And he said it was the first dry season

in his entire life that he hadn't taken

his 12 children and 50 grandchildren

on a two day journey across the desert

to work as day laborers at a commercial farm

for about 50 cents a day.

Because he was building these crops.

And with the money he earned he could stay this year.

And for the first time ever in three generations,

his children would go to school.

We asked him if he would send his daughters as well as his sons.

And he said, "Of course I will.

Because I don't want them discriminated against anymore."

When we think about solutions to poverty,

we cannot deny individuals

their fundamental dignity.

Because at the end of the day,

dignity is more important to the human spirit than wealth.

And what's exciting is to see so many entrepreneurs across sectors

who are building innovations that recognize

that what people want is freedom

and choice and opportunity.

Because that is where dignity really starts.

Martin Luther King said that

love without power is anemic and sentimental,

and that power without love

is reckless and abusive.

Our generation has seen both approaches tried,

and often fail.

But I think our generation also might be the first

to have the courage to embrace both love and power.

For that is what we'll need, as we move forward

to dream and imagine what it will really take

to build a global economy that includes all of us,

and to finally extend that fundamental proposition

that all men are created equal to every human being on the planet.

The time for us to begin innovating

and looking for new solutions, a cross sector, is now.

I can only talk from my own experience,

but in eight years of running Acumen fund,

I've seen the power of patient capital.

Not only to inspire innovation and risk taking,

but to truly build systems that have created

more than 25,000 jobs

and delivered tens of millions of services and products

to some of the poorest people on the planet.

I know it works.

But I know that many other kinds of innovation also work.

And so I urge you, in whatever sector you work,

in whatever job you do,

to start thinking about how we might

build solutions that start

from the perspective of those we're trying to help.

Rather than what we think that they might need.

It will take embracing the world with both arms.

And it will take living with the spirit of generosity and accountability,

with a sense of integrity and perseverance.

And yet these are the very qualities

for which men and women have been honored

throughout the generations.

And there is so much good that we can do.

Just think of all those sunflowers in the desert.

Thank you.

(Applause)