Robynn Steffen
Senior Manager

Reflections on Making Markets Work for the Poor

June 1, 2016

The Bill & Melinda Gates Foundation recently pulled back the curtain on the $1B+ in impact investments it has made to help make markets work for the poor.

With $1.5B allocated to program-related investments (PRIs), the Gates Foundation uses debt, equity, guarantees, and fund investments to augment their traditional grantmaking activities. The special supplement, Making Markets Work for the Poor, a collaboration between the Gates Foundation, Paul Brest of Stanford Law School, and ImpactAlpha, Inc. and produced by Stanford Social Innovation Review, features case studies on eight investments designed to advance the foundation’s goals, from nudging biotech startups to tackle neglected diseases, to unlocking credit for low-income customers in Africa, to increasing graduation rates for low-income community college students in the United States. In doing so, this piece makes clear the catalytic role foundations can play in deploying highly risk-tolerant capital to the most challenging markets.

From this richness, here are a few themes that caught our eye:

  • Invest in innovation. Julie Sunderland, who launched the Gates PRI effort in 2009, argues that innovation is essential to make markets work for low-income customers. We couldn’t agree more. To illustrate the point, Julie points to bKash, a company that leverages mobile payments to deliver financial services for a fraction of the cost in Bangladesh. That same leapfrog potential drove our own investments in Paga in Nigeria, Zoona in Zambia, and Ruma in Indonesia. In Frontier Capital, we celebrate a new wave of entrepreneurs pioneering new business models and price points to tap the $3T market opportunity that low-to-lower-middle income customers collectively represent. More early-stage risk capital is needed to realize the full potential of these disruptive ventures.
  • Get creative with financial structures. As demonstrated throughout the case studies and as Julie Sunderland explained, there are a variety of challenges associated with using market-based solutions to reach the poorest. These challenges range from underdeveloped infrastructure to costly last-mile distribution.  Supporting businesses in overcoming such challenges requires the creative use of financial instruments, an area where the Gates team has excelled. We were particularly excited by their use of volume guarantees to help lower the cost and increase the supply of contraceptive devices for millions of women in emerging markets.
  • Know your appetite for risk, financial return, and social impact – and be purposeful about the specific market segments where you play. Impact investing’s big tent has given rise to a debate as to whether there is a trade-off between financial and social returns. Some point to the recent Wharton and GIIN/Cambridge Associates studies as evidence that impact investing is an unqualified win-win. Others argue that you can either get market-rate returns or have a transformational impact – but never both. Against this backdrop, Julie underscores that the specific market segment matter: “In other sectors maybe there isn’t a trade-off between financial and social returns; you can have your cake and eat it too. In the markets in which we work – where we’re focused on the poorest populations and we’re trying to solve market failures – we’re pretty conscious that we should be providing a subsidy and that the subsidy is valuable in enabling us to get toward impact.” We see an increasing need to segment the field to get clearer about specific market segments and the associated risk, return, and impact profiles so investors can be more purposeful about where they play, which Gates has done.

We applaud the Gates Foundation’s leadership and willingness to share key lessons learned, successes, and failures using PRIs. Already, this series has spurred much needed conversation about the ways foundations can use strategic investments to support their missions, and the recently updated PRI examples should lower the barrier to doing so. We look forward to continuing this conversation as part of the Second Vatican Conversation on Impact Investing, where we will be focusing on evidence that impact investing benefits the poor. We hope the ongoing work of Gates and other leaders in this space will inspire other foundations to explore how they might use all available resources at their disposal to create outsized impact.


To learn more, watch a recent panel on the topic featuring Robynn Steffen and other philanthropy leaders:

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