Aiding the Poor Through Investing

Article / Produced by TOW Project
Aiding the poor through investing

While giving is a fundamental way of using wealth to aid those caught in poverty, wise investment of wealth can also be very effective in helping the poor. There are many examples of how this can be achieved. However, over recent decades two broad movements illustrate what can be achieved by investment in the poorest communities.

The first is the world of microfinance. Across the globe, though particularly in developing nations, co-operatives are established in poor communities to make loans to initiate small businesses. As these businesses generate income, the start-up loan is paid back and the capital lent to new small businesses. At least, this is the intention. The effectiveness of microfinance seems to be uneven in various contexts, and it has its share of supporters and of critics. However, at its best, it is a mechanism for those with entrepreneurial abilities to obtain capital, create a value-adding business, provide for themselves, and benefit their communities.

A second broad form of microfinance is that of “savings-led” co-operatives, which rather than giving loans to members, asks them to commit to saving a small amount each week, which is then aggregated with the rest of the group and eventually invested. Over time, with support and mentoring, the co-operative builds a reservoir of capital, which can be drawn on by individuals for urgent needs or borrowed in order to begin a business. The shared capital can also be used for enhancing the well-being of the whole community. Savings-led co-operatives help poor communities to overcome one of the primary barriers for people improving their lot—that is, a lack of options for safely investing their minuscule savings.

Another movement growing in both developed and developing nations is that of “social enterprise.” These are businesses that are established to achieve social goals in addition to being profitable. Such enterprises often seek to generate a “sustainable” profit, but not necessarily to maximize return on investment.

A few examples of such enterprises are:[15]

  • Sarah and John have set up a pottery business and only employ people who have multiple barriers to finding work. Workers may be homeless or semi-homeless and may have mental health issues, physical disabilities, substance addictions or other struggles. The employment is not full-time, but it does provide a supplement to whatever other means of support workers receive. The pottery is sold through specialty shops and also through the Internet.
  • Michael runs a business assembling and exporting electronic components. He employs people with autism spectrum disorder (also known as Asperger’s syndrome), training them to do the highly delicate work. The business is only small (employing up to 12 workers at any one time), but the opportunity to train, mentor and develop people who otherwise would struggle to get work, is central to his motivation and decision-making.
  • XYZ organization has established a jute bag making business in the red light district of a major Asian city. Bags are exported all over the world and are known for their durability and quality. The business only employs women who have been caught up in prostitution or are vulnerable to it. Offering women a way out of the entrapment of selling their bodies in order to feed their families, the jute bag factory provides meaningful alternative employment at a livable wage, plus the benefit of a supportive community.
  • Jerry has operated an importing business for some years. Though he doesn’t employ anyone, he has invested considerable resources in order to build a business that is sustainable and profitable. He pays himself a livable wage and all profits are given away to a microfinance project in the developing world.

Although we have focused on investment vehicles that explicitly seek to aid poor people, ordinary for-profit business investments in poor countries and communities can also be powerful means of reducing poverty. The productive capacity of the world is not close to being exhausted, although human ingenuity and diligent stewardship of natural resources and the environment are required.

However, because the purpose of businesses is generally to benefit shareholders, not poor communities, they can also become powerful means of exploitation and abuse. Hundreds of millions of Christians work in businesses that invest in, manufacture, distribute, sell or transport goods and services in poor regions. Perhaps they have the greatest opportunity of all to shape business strategy and operations in ways that aid poor people throughout the world.