Patient Capital is not aid – some thoughts on the differences in approach of Acumen Fund and traditional aid

Posted in Uncategorized by matthiasdaues on April 16, 2010

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Why is Acumen different? Because alms trickle down, but loans circulate.

I have written three quite emotional and maybe overly polemic rants to vent my feelings of urgency, one in the „forum„, one on „my page“ and one on „urgent evoke„. Now I want to state in hopefully quite simple terms, why I think Acumen’s approach is fundamentally different from the standard model of aid, which has its rightful place when partnered with the attribute „humanitarian“. It has to do with relationship-building.

The standard model of aid goes like this: Donor (gives money) -> intermediary (collects the funds and covers his cost) -> recipient (gets alms). There is only one business model involved, that of the intermediary. His livelihood depends from the continued existence of donors and recipients. If the donors run out of funds or if the recipient runs out of need, the business falters or dies. For development aid this means that the aim of truly making poverty history is contrary to the best interest of the one business that is the hub of the system. Since there is a unidirectional flow of capital, the system is rigid. A set of rules and regulations holding all parties involved accountable to the same measures does not exist. It is a profoundly asymmetrical and arbitrary relationship.

Acumen’s model of aid goes like this: Donor (gives money) -> intermediary (collects the funds and covers his cost) <=> recipient (gets loans). There are two business models involved, that of the intermediary and that of the recipient. If the donors run out of money, the intermediary’s business still falters or dies. But if the recipient lifts himself above the poverty line he will still be a viable busniness partner for the intermediary. Since there is a bidirectional flow of capital, the system is flexible. A shared set of rules and regulations holds all parties involved accountable. It is a potentially symmetrical relationship where arbitrariness is weeded out in principle.

The model Acumen follows is scalable and its components are changeable: The donors could become investors in bonds issued by acumen to finance projects. Acumen can filiate and become a bank or cooperate with financial institutions to do so besides collecting charitable funds. The recipients that succeed and become established businesses will still need access to capital and consulting services that Acumen can provide. All in all, the „patient capital“-approach enables common growth instead of outgrowing each other.

Something to share and start asking questions:

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