Ethical aspects

Doing business in poor areas

It struck me that when doing buy-to-let investments in poor areas there is no way getting around that one has to be prepared to throw out poor people from their homes. Not in person, but that doesn’t make it feel any better. (or, ahem, maybe it does a bit, but it’s not different from an ethical point of view)

The somewhat cold and rational way to look at it is that doing business in poor areas is beneficial for the area creating better services (housing in this case) and jobs. Not doing business there at all because one cannot take tough decisions leaves everybody worse off.

A half charity, half business approach to allow some tenants to stay without paying rent out of pity is I believe a recipe for disaster.  By doing this there is no longer a business relationship between landlord and tenant where both can hold their heads high. Instead the tenant becomes dependent on continuous charity from the landlord.

Additionally, the incentives that are created are awful if the tenants with most problems don’t have to pay rent, whereas honest hard working tenants have to pay. The honest ones might become a bit less honest and come up with a few problems of their own in a situation like this.

Doing business and doing good?

One better model to mix business with philantropy is what Warren Buffett and Bill Gates are doing. Ie, focus completely on the business at first and then at old age do philantropy in a sophisticated, well thought out and business like manner, or just give the money away to someone that does philantropy very well (like Buffett did). Doing successful philantropy or aid is actually very difficult in my opinion, if by success it is meant that it actually helps the poor in a non-temporary way, and not just makes the donor feel good about himself/herself which is a goal much easier to achieve and arguably more commonly achieved.

However, Buffett and Gates didn’t start their businesses in Africa and weren’t faced with the ethical issues associated with doing business in a place with prevalent poverty. One that did is Ingrid Munro, a middle aged Swedish woman who manages to mix business with doing good and is almost becoming my new hero!

Jamii Bora

Ten years ago Munro lived in Kenya and had just retired. She had gotten to know 50 beggar women living in the slums of Nairobi who wanted to borrow money from her. Instead of lending them money straight away, Munro encouraged the women to save the equivalent of half a euro a week, promising them they could borrow twice as much as they saved.

It worked out great and was the foundation of the microfinance organisation Jamii Bora (meaning “Good Families” in Kiswahili). Munro’s idea was to aim Jamii Bora’s services at the poorest of the society, actually unlike much other microfinance often targeting people a level above the poorest of the poor.

From the start, and I like this part, Munro made it clear that Jamii Bora was not doing charity, and that business considerations would strictly be the top priority.

On Jamii Bora’s Swedish website (there is an English one too) Munro is quoted saying:

“One cannot lift a person out of poverty. There is no country in the world that has raised itself out of poverty through charity. What we offer to Jamii Bora members is access to a ladder that they can climb up to take themselves out of poverty. But the climbing they must do themselves.”

Today Jamii Bora has 300,000 members, is building a whole new town outside Nairobi and has obtained a banking license making it Kenya’s fifth largest bank by account holders and is offering all types of financial services.

Now, I’d say Ingrid Munro is a social entrepreneur as Jamii Bora’s main goal seem to help people and not to make money. It’s interesting to see though, that strict business priciples and aiming to make a profit (Jamii Bora aims to make a small profit) not only contributes to the goal of helping people, but seems to be critical to Jamii Bora’s success.

Unlike Jamii Bora, my own little venture aims primarlily at making money, but helping people is a non-negligable side effect. And looking at Jamii Bora, contrary to popular belief, it looks like the goals of making money and heping people are more symbiotic than contradictory.

For more info on Ingrid Munro, check out this interview with her in a (great) New Yorker article about microfinance


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