News : The Case for Patient Capital 2011

Charity and government aid aren't the only tools to reverse poverty. Debt and equity investments in businesses that sell crucial products and services to the poor can be just as effective
By Jacqueline Novogratz

In 2002, after nearly 10 years of running a nonprofit to help poor farmers in India get the most out of their land, Amitabha Sadangi was frustrated. Government aid to alleviate poverty had largely bypassed individuals earning less than $1 day. Instead it was subsidizing large farms and being invested in technology he said his farmers didn't want. Sadangi sought to treat the poor as customers, not passive recipients of charity. He decided he would adapt a water-saving drip irrigation system to the specific needs of Indian smallholders and sell it at an affordable price.
Acumen Fund, the nonprofit venture capital fund I lead, gave Sadangi's nonprofit, International Development Enterprises India, a $100,000 grant and loans to experiment with his product.Then in 2006, we invested $1 million in equity in Global Easy Water Products (GEWP), a for-profit spinoff Sadangi created in western India to further increase the technology's reach among the poor and sell other products to them.
To date, GEWP and its parent nonprofit have sold irrigation systems to some 350,000 farmers. Including the farmers' family members, roughly 2 million people are now benefiting from higher income levels—for some, $5 to $6 a day instead of $1 to $2. With 101 employees and sales that have tripled since 2008, GEWP is now one of Acumen's most profitable enterprises. It has even begun to pay dividends to its shareholders. By all measures, that is the kind of return on investment we need to see in a world with more than 2 billion people living in poverty.