Village Enterprise is a small NGO. Its annual budget? About $3.5m. Number of employees? Fewer than 150, with all but seven based in East Africa.
Yet Village Enterprise is about to test a big idea that has the potential to insure that money spent to fight global poverty has real impact. It’s known, inelegantly, as results-based financing.
Based in San Carlos, CA, Village Enterprise has been around since the late 1980s. For most of its history, the organization was run primarily by volunteers, working with individual donors and churches in the US to make cash grants to the poor in Africa.
Since 2010, when Dianne Calvi became the nonprofit’s first outside chief executive, Village Enterprise has grown. Today, the NGO provides cash, business training and mentoring to extremely poor people in rural Kenya and Uganda to help them start small businesses and join savings groups. Typically, they raise livestock, farm, keep bees or open a small store. It’s one of a number of NGOs, both large (BRAC) and small (TrickleUp), that practice what’s known as the graduation program, an anti-poverty program that has been found to be cost-effective and sustainable by randomized controlled trials (RCTs) involving more than 10,000 people in Africa, Asia and Latin America, as Science magazine reported in 2015.
Village Enterprise’s particular spin on the graduation program has been shaped by evidence. Its work is the subject of a pair of randomized controlled trials (RCTs), one by Innovations for Poverty Action that is nearing completion, another by IDInsight that will begin next year. Its work has also been evaluated by ImpactMatters, which praised Village Enterprise for its commitment to learn and improve. Few small nonprofits have been studied as intensively.
“Having solid evidence is important,” says Calvi, who worked in the corporate world and in international development before joining Village Enterprise. “So much money has been spent (on anti-poverty programs), and yet some of the problems have persisted or gotten worse.”
[A quick aside: Please keep this in mind next time you get a fundraising pitch from a bigger, better-known NGO, like CARE or Save the Children, whose work has not been as rigorously evaluated.]
Last week, I got on the phone with Dianne Calvi to learn more about Village Enterprise and its venture into results-based financing. The organization got my attention because of the review by ImpactMatters and because it has been selected as one of the best charities by The Life You Can Save, which promotes effective altruism.
Recently, Village Enterprise was chosen to be part of a $5.26m development impact bond supported by three major donors–US AID, DFID, which is the UK’s international aid agency, and an anonymous foundation. The idea behind a development impact bond is that NGOs are rewarded only if they deliver measurable results. The mechanics of the project are complex but they matter, so let me try to explain.
US AID, DFID and the anonymous foundation are what’s known as “outcome payors.” They will pay Village Enterprise if–and only if–its program delivers agreed-upon outcomes, notably increases in consumption and savings incomes for those being helped. IDInsight, a nonprofit that does research on global poverty, will evaluate the program. (See my 2016 story about IDInsight for the Chronicle of Philanthropy.) Better outcomes will mean higher payments to the NGO, which in turn will repay its own funders.
To provide the working capital to run the program, Village Enterprise is raising money from so-called investors, who can choose to provide conventional donations, to make low-interest or no-interest loans or to make actual investments, which could generate returns of up to 10 percent, according to Calvi. If all goes well, Village Enterprise will tap into the growing but still nascent field of impact investing, where investors, including foundations, seek social or environmental along with financial returns.
The appeal of this approach to governments should be obvious. “USAID and the DFIDs of the world would rather pay for results than pay for activities or outputs,” Calvi says. Conventional foreign aid spending does not always deliver results, it’s fair to say. The results-based approach is a way of “transferring the risk (of development projects) from the public sector to the private sector,” Calvi says.
Brian Boland, a Facebook executive, and his wife Katie have agreed to make a $1m investment in the project. They are longtime supporters of Village Enterprise, and last year visited Uganda to meet the people carrying out the work; they were impressed. “They’re very strong leaders, great visionaries and passionate people,” Brian Boland told me.
Private impact-investing funds or foundations that do mission investing have expressed interest in supporting the bond. Calvi says she’s confident that Village Enterprise will be able to raise another $2m or so by spring.
If all goes according to plan, this first bond will deliver Village Enterprise’s graduation program to 13,800 households, who will start about 4,600 business in roughly two years. The Village Enterprise model differs from other graduation programs because three people work together to start and run each business. About two-thirds of those who sign up for the program are women.
One problem with impact bonds is that setup costs are high. Making sure that everything is on the up and up evidently requires not only an evaluator, IDInsight, but also a project manager, Instiglio, which specializes in results-based financing and a trustee, Global Development Incubator. They’re all non-profits but you can be sure that each will take a slice of pie, which means less money and support for the extreme poor. In fact, nearly $1m of the $5.26m budget for the project is expected to be spent on evaluation, overhead and management.
That sounds like a lot–heck, it is a lot–but Calvi says that once the structure is established and the program is proven, more money can be poured into it without substantially raising administrative costs. It’s like a building a factory: Once constructed, you can ramp up production and capitalize on economies of scale.
Besides the Bolands, Village Enterprise’s major funders include the Cartier Foundation, the Greater Impact Foundation, Geneva Global, the Younger Family Fund and the Segal Family Foundation–none of them among the US’s biggest foundations, which tend to be risk averse.
But Calvi hopes that, by building up a solid base of evidence and pioneering the development impact bond, Village Enterprise will be able to bring on bigger partners and inspire others to build upon its work. “More and more funders,” she says, “are interested in organizations that can demonstrate impact.” Let’s hope she’s right.