Social entrepreneurs have at least one thing in common: they are trying to solve a problem in the world.
Perhaps the problem is creating social divisions and feeding into poverty or is accelerating climate change. For every global issue, there is someone out there cultivating a solution through enterprise and business.
As a young social entrepreneur, Rupert Scofield spotted an opportunity that others had not. This has become the backbone of his successful business, one that has been supporting social change for over 35 years.
FINCA International was founded to help people out of poverty so that they can build assets, create jobs and raise their standard of living. It started out loaning to small-scale farmers in Latin America who needed credit to expand their agricultural businesses. The banks would not loan to them and other lenders were simply out to exploit them.
Rupert took a risk, loaning small amounts of money at reasonable interest rates to those who had no collateral. Almost every single one of those farmers paid back the loan even though there were no formal contracts in place.
The network of microfinance
Today FINCA Impact Finance is a network of 20 microfinance institutions offering a range of financial services across five continents. It has approximately 2.4 million clients and in 2018 disbursed $1.1bn in loans.
Rupert articulates how he came across an idea that happened to have a gigantic market behind it. Explaining how people had been working on these problems for a long time but working on it in the wrong way. Urging banks to lend to people they had absolutely no interest in lending to was never going to work.
In the 1970s Rupert was a volunteer in the Peace Corps, spending time in Guatemala with members of a farming cooperative. They needed credit for their crops and soil improvements, but nobody would loan to them. Rupert agreed to loan them each $50 for fertilizer, which increased their yields substantially. It may have been a small sum, but it made a huge difference to the people who previously could not access capital. Some years later he took that idea and refined it with the help of his business partner and co-founder John Hatch. That’s how FINCA International was established in 1984.
Entrepreneurs needed more than ever
Rupert tells Invest for Good that now more than ever social entrepreneurs need to continue to innovate and seek opportunities, in much the same way he pursued microfinance in its infancy. This is not simply because the world is crying out for these solutions, but because the world is changing rapidly.
The president of FINCA is partly referring to the fallout of COVID-19, a development that has exposed the fragility of our markets. It also has potential ramifications for entrepreneurs who are not yet well established.
The rallying cry from people who believe that social entrepreneurs should receive support has been swift, including the COVID Response Alliance for Entrepreneurs, a collaboration of 40 global organisations. Additionally, the major global microfinance organisations have formed a coalition for collective action in response to the pandemic. FINCA itself has launched an emergency fund to provide support for low-income entrepreneurs and high-impact start-ups.
In spite of the challenges Rupert does not believe the current climate should deter entrepreneurs. He recognises that starting a business is not easy but thinks it is easier than when he started out. Rupert attributes this to the increasing support available to today’s entrepreneurs, from accelerators and incubators to better tech, advice and business books.
Rupert is himself the author of The Social Entrepreneur's Handbook. Based on his experience and learnings, it lays out a practical plan for how to start a social enterprise. He suggests using the time afforded by the pandemic to take inventory of your assets, your education, your talents, and then learn as much as you can and compensate for any gaps in your knowledge. His advice: “invest in yourself”.
Looking to social enterprise
Rupert is still passionate about changing the world for the better all these years later and this ambition has provided the fuel for FINCA International’s initiative, FINCA Ventures. Started three years ago, it provides promising social entrepreneurs with investment and has deployed nearly $2m of patient capital into eight social enterprises spanning education, energy, health and agriculture.
One of their investments is MDaaS, a start-up in Nigeria that creates affordable and accessible diagnostic services in clinically underserved communities and is now increasing COVID-19 testing capacity. It is Rupert’s hope that the likes of MDaaS could help microfinance clients too, establishing a “win-win” partnership. He believes within the overlap of these two areas there is great potential. Previously microfinance clients might not be able to afford healthcare if they suddenly became ill. Rupert explains: “Someone would get a loan and be climbing the ladder out of poverty. Then a family member got sick and they’d go broke from medical bills.” That situation is disastrous, and from Rupert’s perspective, completely avoidable. It is his aim to create “an ecosystem of social enterprises” that together can have a large-scale impact.
Another FINCA Ventures investee is Good Nature Agro, a social enterprise helping small-scale Zambian farmers reach a better standard of living by selling high-value legumes. Almost 6,000 farmers have received nearly $1m in pay-outs for their harvest. These farmers are now in a position to ask for the financial services that FINCA International provides, again creating a mutual benefit between the two. Unfortunately, this area of Zambia is remote and there is little-to-no cell-phone coverage. With the local bank moving in a digital direction these potential customers are being left behind. Rupert even suggested building a cell-phone tower so that the bank could make them customers, but the matter is still unresolved. He talks of his frustrations regarding these types of situation, knowing they’re onto something but still lacking in execution.
Who has the solutions?
Frustration is not new to the CEO. He has ambitions that require collaboration and will-power, but he doesn’t believe these are entirely forthcoming. Despite his belief that progress is being made, he acknowledges that the challenges are also greater.
“It’s almost like there’s a delight in creating more people who have to live in poverty and creating an alternative group that just has enormous wealth.”
Neither the government nor the private sector seems to have the answers. Could impact investing be a solution?
He considers the question before answering that it has strengths, but he is occasionally worried by the double-bottom line: that you have to have both a financial return and social purpose.
“As long as there’s a robust financial return, great, but if that goes away or turns negative, the social mission goes out the window.”
His own experience with FINCA has highlighted this problem. He talks about a financial crisis in 2015-16, when the bottom fell out of oil prices. All the oil-producing markets where FINCA Impact Finance operated were near collapse, particularly Azerbaijan, a country where the microfinancier had a huge loan portfolio. Customers could no longer repay, and FINCA Azerbaijan has to negotiate a settlement with their creditors who were impact investors. Fortunately, they survived and recently earned a commitment from the government of Azerbaijan, urging it to rebuild its programme.
Impact at scale
These challenges aside, FINCA Ventures shows the company’s commitment to impact investing. Last year it produced its first impact report showcasing highlights across a diversified portfolio that spanned 31 countries. The team has developed metrics that demonstrate the good it is doing. Rupert points out a push for better accountability, and the advancements in the technology used to measure returns.
There are some stories that show FINCA Venture’s ability to have a positive impact on communities and people. Take Eneza Education, a tech company that FINCA Ventures started investing in two years ago. It offers revision and learning materials on basic feature phones in three African countries. The company has had over six million learners and a track record of improving a child’s academic performance by 23% in just nine months. Once again, Rupert wants Eneza to be available to FINCA’s microfinance clients. This is not yet possible because the closest FINCA office is in Uganda, where Eneza is yet to reach. “Someday they’ll get to Uganda,” he predicts, “but they don’t have the resources to do it now.”
Rupert believes that there is huge work to be done with FINCA Ventures and he is optimistic that they have pivoted in the right direction.
“The initial hard work was convincing my board and my employees that this was the right direction for FINCA to take.” It seems that now some FINCA board members are more enthusiastic than Rupert ever imagined, and are pushing hard in this direction.
The next chapter
With Rupert hitting retirement age, the president of FINCA does recognise that it might be time to hand over to a successor. Andrée Simon - one of Rupert’s former deputies - is already president and CEO of FINCA Impact Finance. Rupert, meanwhile, is looking after the foundation that includes FINCA International, a not-for-profit organisation that is also the majority shareholder of the microfinance business. “The foundation is smaller, but guess what? I’m happier,” he says. Rupert claims he was never a great banker, as an entrepreneur at heart, what he loves is working with other makers to create new things.
The “new things” includes a podcast series – The Social Enterprise Podcast – and writing a novel. He’s written a few already, tracing his love of writing back to childhood, when he had a former journalist as a teacher who encouraged him. “I could work my whole life and probably never write the perfect book,” he muses. “I like that idea of this gigantic challenge, and I suppose that’s guided me in my alternative life as a social entrepreneur.”
Rupert Scofield is the President, CEO and Co-Founder of FINCA International. He is also the author of The Social Entrepreneur’s Handbook.