Balloon @ Davos World Resources Forum 2015
A couple of weeks back I gave a talk at the World Resources Forum in Davos focusing on social innovation for sustainable consumption and production.
It was a fitting setting, because the concept for Balloon really emerged out of research into the battle for resources in East Africa.
I visited Kenya first in 2010 to better understand the 2007-08 post-election violence. Through many conversations I came to believe that the root of the conflict was the perceived unfair distribution of resources. It was largely poor young men fighting. Some were paid to fight. Others were fighting for their share and their communities share of the country’s wealth. Thus, I felt that sustainable peace wouldn’t be achieved without jobs and prosperity for all.
The second thing that I was struck by in Kenya was the unbelievable number of businesses. It seemed like everyone was selling something.
Having spent many months in Kenya I now understand this better. In a society with few jobs and no welfare state people are forced to becomes entrepreneurs. Everyone has to hustle to survive. However, walking down the street, what is striking is how similar the businesses are. Whether its second hand clothes or shoes or household goods – the streets are flooded with the same goods sold at the same price in the same way.
Looking at this situation led me to believe that micro-finance doesn’t work for this group of people. Microfinance is the practice of giving very small loans. In Kenya this often comes at interest rates of between 15-30%. Repayment terms are very harsh so often entrepreneurs will be expected to start repaying within weeks. And often these loans will be backed up with some kind of collateral e.g. a title deed. This combination of factors has a very negative impact on business growth.
If we look at the most innovative entrepreneurial cultures in the world, we see that failure is a pre-requisite for innovation. At Stanford students are taught how to write Failure CVs because they believe that you learn more through failure than through success. And in Silicon Valley entrepreneurs proudly put on their CV how many companies they have bankrupted. Entrepreneurship involves the creation of something new. And often this new thing doesn’t work. In innovative cultures this is celebrated.
However, in Kenya failure is not allowed. Microfinance does not accept business failures as their repayment rates are between 96-100%. People are forced to repay! This means that no one has the ability to take risks. This kills innovation. And so a copy cat culture appears where it is much safer to replicate what already works than go it alone. In this situation everyone just about survives but no one thrives.
Micro businesses remain micro…
At Balloon we believe that this results in huge wasted potential.
Let’s just look for a moment at the size of this wasted potential. In Kenya there are 2.4 million people employed in the formal sector. However, a massive 11.8 million are employed in the informal sector. That means that over 80% of people working in Kenya work in the informal sector i.e. men or women operating as micro entrepreneurs. Where the market and government has failed to create jobs, people have created their own opportunities to survive, selling whatever they can.
I find this inspiring. Each time I visit our programmes or hear stories of the entrepreneurs we support I am amazed by their drive and commitment. Often they will work 14+ hour days. They operate in some of the most competitive markets I have seen. And yet they all manage to find a tiny niche (often built around personal relationships).
The mission of Balloon is to unleash the potential of these entrepreneurs – helping them to innovate and to build businesses that can grow.
We do this in 2 ways. Fellows (volunteers) that join us from across the world (42 countries so far) work with these entrepreneurs introducing key business tools and new ways of looking at the market.
Secondly, we provide 0% interest loan, unsecured and based on trust. This is essentially micro risk capital, giving the entrepreneurs permission to have a go and innovate without the fear of failure. In Kenya alone we’ve now issued over £100,000 of loans.
Tension exists because not everyone wants to take a risk and do something different. In this case the programme is still of value as it helps them to refine their niche and improve their business operations often resulting in a substantial increase in revenue.
But there are always some who forge a new path.
For example Oli and Nick worked with Rosemary in Eldoret in January 2015. She noticed that many women in low income areas were unable to go to work because there is no affordable childcare. She decided to solve this problem and we funded her to set up a nursery. She now looks after 20-30 children on a daily basis and offers many mothers the opportunity to go back to work.
On its own this is a nice story… but we want Rosemary to do more. She is a brilliant and talented lady so why stop here. Why can’t she build affordable nurseries across the country? This would create many jobs and help grow the economy.
This is the mission we’re on – to take entrepreneurs working in the micro business sector and give them the confidence, support and funding to go to the next level and beyond. However, while there is an opportunity, there is also a massive challenge here around sustainability.
A second story to illustrate this comes from John.
We worked with John in 2013 supported by April and Verena. Like many entrepreneurs in Kenya, John had his fingers in many pies and had multiple businesses. However, one that made the most profit was selling charcoal.
In fact John could buy a bag of charcoal for $1 and sell it for $7 to businesses and homes. An incredible profit margin.
The issue is that most of this charcoal comes from trees chopped down in the Mau Forest – the largest forest in Kenya. In fact, over the past 10 years the Mau Forest has decreased by over 25%. Therefore the charcoal business is clearly not sustainable.
On one trip April and Verena said to John, “A few years down the line, there will be no trees left in this forest, what are you going to do then?” John didn’t answer and they weren’t even sure that he had listened, but a week later he returned proudly with a new ideas.
He had decided to make briquettes created from waste sawdust and other recycled materials. This would provide an alternative to charcoal and save the forest.
2 years on and John is now selling briquettes… but also charcoal. At the end of the day he needs to support his family, and consumers demand charcoal.
From their perspective, price rules over all other considerations. This means from textiles to energy to household goods cheap unsustainable products flood the market. And the Mau Forest is still being destroyed at an alarming rate.
In conclusion, there is a massive opportunity here. The informal economy is strong and growing. There is plenty of talent, energy and drive to grow businesses and build a better Kenya. But at the same time, there are big challenges. Precious resources are burned, land is polluted, and the environment ruined.
This is the challenge, for organisations like ours to help people create jobs and opportunities, but to do this in a sustainable way that preserves Kenya for future generations.