For-profit charity better than corporate aid to disaster victims

Businesses should view humanitarian crises as commercial opportunities if they want to have the most impact in alleviating the effects of disasters while improving their bottom lines.

This is the startling conclusion that has been reached by the Overseas Development Institute (ODI) in a report released last week.

After carrying out research in Kenya, Indonesia, Haiti and Jordan, the ODI found that private sector firms that had approached crises as business opportunities were more successful in mitigating the calamities than those that saw an opportunity to carry out corporate social responsibility (CSR).

There are several reasons why this may be so. The research indicates that the private sector brings with it a level of technical and logistical know-how that is sometimes not available in the aid-sector.

BUSINESS ANGLE

Mr Vimal Shah, chairman of the Kenya Private Sector Alliance, says that viewing humanitarian projects from a business-angle increases the level of accountability.

“If you look at economic gains, you will cut out wastage. Even if you don’t plan to make a profit but view the project as a cost that needs to be recovered, there will be more follow-up. There is a lot of wastage inbuilt in the aid model of giving things for free,” Mr Shah told Smart Company on phone.

The ODI also argues that there is a definite economic case to be made for companies to do business with those affected by disasters, or the very poor.

“Crises and humanitarian responses to crises offer considerable opportunities for firms to gain new customers, introduce new products to customers, grow relationships with existing customers and enhance brand loyalty,” the ODI notes.

So even when companies offer their goods and services gratis to people affected by disasters, they stand to gain in the future as those individuals come back and buy the same goods and services once the crises have been averted.

The ODI notes that since the Indian Ocean Tsunami over a decade ago, the private sector has become increasingly involved in humanitarian efforts.

In fact, ODI reiterates a growing hope in the aid sector that the private industry might do for humanitarian efforts what “Amazon did for the world of retail or what Microsoft and Apple did for personal computing”.

RETAIN LOYALTY

Locally, the institute did a case study of the Kenyans for Kenya campaign in 2011 in which mobile operators provided free money transfer services in order to raise funds for drought victims.

This particular model, ODI says, has been seen in other disaster zones such as in Haiti.

Companies that provide free money transfer or calling services during such crises are retaining the loyalty of existing consumers while also luring new ones.

Companies that participate in humanitarian crises, research has shown, also gain a better reputation. They are better at maintaining high staff morale, recruit the best employees in highly competitive industries and create strong emotional connections with their customers.

“One of the competitive advantages that can be gained from helping out in such calamities is improving the brand value. Organisations now realise that it is not about the quality of what they sell, their goods and services must also be seen as transforming lives,” said Chartered Institute of Marketing chairman James Ngomeli.

The argument can be extended beyond short-term, acute humanitarian concerns. Even in addressing development issues such as financial inclusion and climate change, business, rather than charity, may do more to help.

Kenya is an apt example of this. Over the past decade, millions of people have been brought into the fold of financial services as telcom firms and banks adopt a model of doing business with the base of the pyramid.

This is a market segment that had remained neglected, viewed as unprofitable or difficult to serve for decades.

Eight years ago, only about 18.5 per cent of Kenyans had access to banks and a further 7.5 per cent had access to other “formal” financial services.

According to the 2013 FinAccess survey, at least 65.9 per cent of Kenyans had access to some type of formal financial services. This has largely been changed by a shift of business philosophy in the telcom and banking industries.

Safaricom’s mobile money product, M-Pesa, was initially a donor-funded project to address the dearth of financial and money transfer services among the very poor.
This project would later be adopted by Safaricom as part of its core business strategy.

Today, mobile money is a key part of Kenya’s financial ecosystem. It has acted as a starter-kit for millions of people who have eventually become users of mainstream banking and financial services.

In fact, M-Pesa’s rise may have been inadvertently boosted by the 2007-2008 post-election crisis as Kenyans looked for ways to send money during a time when most banks and businesses had closed down.

PREFERRED MEANS

“M-Pesa was launched before the 2007 election, and the ensuing violence, which saw many banks closed for long periods of time, made it a preferred means of money transfer, both from cities to villages and from villages to large urban camps of people displaced by the violence,” reads a book on the history of the mobile money transfer system, Money, Real Quick.

Equity Bank, with 8.5 million customers, is currently the largest bank by customer-base in East Africa. The bank has risen to these heights by doing business with the poor.

This is a strategy that it plans on maintaining even as it expands into telcoms through its subsidiary, Finserve Africa.

“Equity Bank’s guiding philosophy is to empower the poor and, to the extent possible, enable them to enjoy the same quality of service as that which is enjoyed by the affluent,” said Finserve in a recent letter to the Communications Authority of Kenya.

Billions of money to combat hunger in Northern Kenya have had little or no impact until Red Cross decided to approach the crisis from a different dimension.

Instead of supplying food during drought, Red Cross initiated irrigation schemes operated as business, looping in the locals.

This model of doing business with the base of the pyramid is now actively being adopted in other sub-sectors of the financial services industry.

Insurance firms and pension schemes have been pushing micro-products which, while ensuring the financial security of the base-of-the-pyramid market segment, also have the potential of increasing the adoption of these products and driving up profits.

Another emerging development concern that is also being addressed with business solutions is climate change.

The Kenya Climate Innovation Centre, funded by a consortium of donors and hosted at Strathmore University, was established in 2012 to provide technical and financial support to startups that want to address climate change. However, these startups must become profitable businesses, not charity bodies.

MAKE MONEY

“Climate change issues need to be mitigated but if companies embrace new ways of doing business and looking at matters; they will make money out of it.

“For innovators and people-thinking smart, it is an opportunity,” said the centre’s chief executive, Mr Edward Mungai, in a phone interview.

But gaining customer loyalty during difficult times does not guarantee a business success. ODI writes that following crises, companies still have to work very hard to maintain the quality of their products in order to retain loyalty.

All of this, then, challenges what has become the traditional model of corporate social responsibility (CSR), which has increasingly come under criticism as little more than “green washing” through which firms do more for their public images than for the public.

Mr Shah is one such critic, dismissing CSR as “Cosmetic Social Responsibility”. Companies, he says, should strive to “be good” in their supply chains, in their labour policies and in their operations.

They should avoid “doing good” as an after-thought to their business operations. But companies in Kenya are spending hundreds of millions on CSR. Meanwhile, according to ODI, there are social problems that should not be dealt with as business opportunities.

For instance, the private sector should not soon become one of the front-runners in projects to address sexual violence.

In such areas, there may be an argument for charity. There may be a case for donations to projects that are run by the government or the aid community.