Handouts cripple economies. The sooner corporations and individuals understand this the sooner we can break the cycle of poverty.
This was the message conveyed by Springhill Management Ltd chairman Datuk Dr Kim Tan at a talk last week organised by IDEAS, an international institute for democracy and economic affairs, and Binary University College of Management and Entrepreneurship’s Centre for Social Entrepreneurship (CSE).
The result of cash aid was inverse to its desired impact and would only fuel, inter alia, dependency, market distortion, bring about unsustainable impact and keep tax base low, Tan said of the crux of the issue in struggling economies.
Several years ago, Tan and work associates founded Transformational Business Network (TBN), a pool of 70 businesses, professionals and investors who are committed to impact investing through their skills and resources.
IDEAS has been mooting for Tan’s expertise to benefit Malaysian industries.
“This talk is our first step and we aim to do more with Tan if possible,” IDEAS chief executive Wan Saiful Wan Jan said. “Giving aid like handouts and subsidies may be popular but it doesn’t work, and hurts the health of our economy in the long run.”
As at December 2012, reports charting Sub-Saharan Africa economic progress in the last three decades indicate a 54% high of the informal sector and a mere 10% presence small and medium enterprises (SMEs) in the industry.
It’s a striking contrast to the 51% expansion of SME businesses in advanced economies, which avails employment to a third of its populations.
Two thirds of the Sub-Saharan region remain unemployed.
These estimates are telling of repeat cycles of poverty happening in spite of funds being injected to alleviate the vastly complex situation.
“To up these economies, we must shrink the informal sectors,” Tan said.
He shared that he started TBN when he wearied of writing cheques to needy organisations and not seeing long-term impact. “We started to fly out to places, helping start-ups from the ground up instead.”
His motivations are rooted in the life-changing result of his mainland Chinese parents, who “sacrificed everything they had” for their children’s education.
“That enabled my siblings and I to transform the economics of our family,” he said.
Partner companies include the Hagar Social Enterprise Group, a global project established to provide employment to non-governmental organisations (NGOs).
It started out as a platform particularly for trafficked, abused and exploited women in Cambodia to find refuge and also launched in Afghanistan and the UK.
The enterprise, a contract-catering business, employs 530 citizens and raked in US$3.9mil (RM11.7mil) in revenues last year.
In Africa, TBN is largely involved in environmental conservation, working on projects such as restoring degraded thicket with spekboom (a small-leaved plant), improving game farming and generating carbon credits, all of which create jobs for folks in the outskirts.
One of TBN’s brainchilds is replacing hazardous waste-inducing wood ovens with the Jikapoa stove, a Kenyan-produced stove that utilises a ceramic core and sheet metal body.
Kenyans manufacture it for distribution and target to sell a million of them in the next decade.
Other TNB ventures in Africa include cashless private schools using M-pesa, computer training centres and Internet cafes; and spot taxis (India).
To date, over 200,000 jobs have been created through 65 projects, leveraging from about US$35mil (RM105mil) of investments via personal and managed funds, clubs and investment structures such as loans, convertibles and equities.
While these efforts are reported as successful in those nations, its formulae has yet to be tested in Malaysia.
In a brief forum following the presentation, a participant raised the scenario of a working class family, whose combined income of a reasonable RM10,000 will quickly drain out if they bear a child with special needs or have to support an ailing parent.
“With special-needs child cares services that come up to RM13,000, how will such families keep up? Usually, a parent will leave employment, but that brings us back to the old conundrum of reduced taxpayers in the economy,” the participant said.
It is a different form of destitution that is present in our local society.
Tan replied: “This is why we need to grow our networks. It is not anymore about making money for ourselves, but about using enterprise to address poverty.
“There are no guarantees in impact investing. But you are writing out cheques anyway. Couple those resources with your time and skills to grow businesses for the marginalised. Otherwise, when you give it for free, people take it for granted.”
“We will continue discussing with Datuk Tan on how best to channel his expertise into Malaysia,” Wan Saiful said. “This talk is the first step.”