Harvard Case - The Hand in Hand's Story of Making Microfinance Work for the Bottom of the Pyramid
"The Hand in Hand's Story of Making Microfinance Work for the Bottom of the Pyramid" Harvard business case study is written by Norma Juma, Jennifer Sequeira. It deals with the challenges in the field of Social Enterprise. The case study is 27 page(s) long and it was first published on : Feb 1, 2016
At Fern Fort University, we recommend that Hand in Hand (HiH) focus on solidifying its existing social enterprise model, prioritizing sustainable business models and social impact measurement to ensure long-term success and scalability. This approach will involve leveraging strategic alliances with other nonprofit organizations and government agencies to expand reach and impact. Additionally, HiH should actively explore social franchising as a growth strategy, while simultaneously incorporating environmental sustainability into its operations to create a truly triple bottom line impact.
2. Background
This case study focuses on Hand in Hand, a social enterprise operating in developing countries, providing microfinance and business training to low-income entrepreneurs. Founded in 1991, HiH has grown significantly, demonstrating the potential of microfinance to empower individuals and communities. The case study highlights the organization's challenges as it strives to balance social impact with financial sustainability.
The main protagonists of the case are:
- Martin Raiser: Founder and CEO of HiH, passionate about alleviating poverty through financial inclusion.
- HiH Board: Responsible for overseeing the organization's strategic direction and financial health.
- HiH Staff: Dedicated to delivering microfinance services and business training to clients.
- HiH Clients: Low-income entrepreneurs who rely on HiH's services for economic empowerment.
3. Analysis of the Case Study
This case study can be analyzed through the lens of social entrepreneurship, specifically focusing on the intersection of social impact and business sustainability. HiH's success hinges on its ability to achieve both these objectives.
Key Issues:
- Financial Sustainability: While HiH has achieved significant growth, its financial model relies heavily on donor funding. This creates a dependency and limits its ability to scale sustainably.
- Social Impact Measurement: HiH needs to develop robust metrics to accurately measure its impact on clients' lives and the broader community. This will allow for better resource allocation and demonstrate the value of its services.
- Growth Strategy: HiH must develop a comprehensive growth strategy that balances expansion with maintaining quality and impact. This requires careful consideration of its existing model and potential opportunities for diversification.
- Environmental Sustainability: HiH needs to incorporate environmental sustainability into its operations, aligning with the growing demand for sustainable business models and ethical supply chains.
Framework:
The Stakeholder Theory can be applied to analyze HiH's situation. The organization needs to balance the interests of various stakeholders, including:
- Clients: Beneficiaries of HiH's services, seeking financial empowerment and improved livelihoods.
- Donors: Providing financial support, expecting transparency and accountability in the use of funds.
- Staff: Dedicated to delivering services, seeking fair compensation and opportunities for professional development.
- Board: Responsible for strategic direction and financial oversight, ensuring long-term sustainability.
4. Recommendations
- Prioritize Sustainable Business Models: HiH should transition towards a more self-sustaining model by diversifying revenue streams. This could involve:
- Expanding loan products: Offering a wider range of loan products tailored to specific client needs, including agricultural loans, housing loans, and business expansion loans.
- Developing new revenue streams: Exploring opportunities beyond microfinance, such as providing insurance, savings products, or business consulting services.
- Optimizing operational efficiency: Streamlining processes and leveraging technology to reduce costs and improve service delivery.
- Implement Robust Social Impact Measurement: HiH needs to invest in developing a comprehensive system for measuring its social impact. This could involve:
- Collecting data on client outcomes: Tracking key metrics such as income growth, business expansion, and poverty reduction.
- Conducting impact evaluations: Utilizing rigorous methodologies to assess the effectiveness of HiH's programs.
- Developing a Social Return on Investment (SROI) framework: Quantifying the social value generated by HiH's activities.
- Explore Social Franchising as a Growth Strategy: Social franchising can enable HiH to expand its reach without sacrificing quality or impact. This involves:
- Partnering with local organizations: Granting licenses to reputable organizations to operate HiH's model in new locations.
- Providing training and support: Offering comprehensive training programs and ongoing support to franchisees.
- Maintaining quality standards: Establishing strict quality control measures to ensure consistent service delivery across all locations.
- Integrate Environmental Sustainability: HiH should incorporate environmental sustainability into its operations to become a truly triple bottom line organization. This could involve:
- Promoting green business practices: Encouraging clients to adopt environmentally friendly business practices.
- Investing in renewable energy: Utilizing solar power or other renewable energy sources in its operations.
- Reducing waste and promoting recycling: Implementing waste reduction and recycling programs within its offices and client outreach activities.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: These recommendations align with HiH's core competencies in microfinance and business training, while reinforcing its mission of alleviating poverty through financial inclusion.
- External Customers and Internal Clients: The recommendations address the needs of both external customers (clients) and internal clients (staff) by promoting financial sustainability, impact measurement, and professional development opportunities.
- Competitors: HiH needs to differentiate itself from competitors by focusing on its unique value proposition, which includes its commitment to social impact, client-centric approach, and focus on sustainable business practices.
- Attractiveness ' Quantitative Measures: While quantifying the impact of social enterprises is challenging, the recommendations aim to improve HiH's financial performance and social impact, ultimately enhancing its attractiveness to donors, investors, and potential partners.
6. Conclusion
Hand in Hand has the potential to become a leading social enterprise in the field of microfinance. By prioritizing sustainable business models, robust impact measurement, strategic growth strategies, and environmental sustainability, HiH can solidify its position as a force for positive change in developing countries. This approach will ensure its long-term viability and maximize its impact on the lives of its clients and the communities it serves.
7. Discussion
Other Alternatives:
- Going Public: While going public could provide access to capital, it could also compromise HiH's mission and social impact focus.
- Merging with a Larger Organization: This could offer financial stability but could also lead to a loss of control and autonomy.
Risks and Key Assumptions:
- Market Volatility: Economic downturns could negatively impact HiH's loan portfolio and financial performance.
- Regulatory Changes: Changes in government regulations could impact HiH's operations and access to capital.
- Competition: Increased competition from other microfinance institutions could erode HiH's market share.
Options Grid:
| Option | Advantages | Disadvantages |
|---|---|---|
| Sustainable Business Models | Increased financial stability, reduced reliance on donor funding | Requires significant investment and effort |
| Social Impact Measurement | Improved accountability, enhanced transparency, stronger case for funding | Requires expertise and resources |
| Social Franchising | Rapid expansion, increased reach, leverage local expertise | Requires careful partner selection and quality control |
| Environmental Sustainability | Enhanced reputation, attracts environmentally conscious investors, aligns with global trends | May require additional investment and operational changes |
8. Next Steps
- Develop a Strategic Plan: HiH should develop a comprehensive strategic plan outlining its vision, mission, goals, and key initiatives for the next 5 years.
- Establish a Social Impact Measurement Framework: HiH should invest in developing a robust system for measuring its social impact, including data collection, impact evaluations, and SROI analysis.
- Pilot Social Franchising: HiH should pilot social franchising in a few select locations to test its effectiveness and refine its model.
- Integrate Environmental Sustainability: HiH should develop an environmental sustainability plan outlining its goals, initiatives, and metrics for measuring progress.
- Seek Strategic Alliances: HiH should actively seek strategic alliances with other nonprofit organizations, government agencies, and businesses to expand its reach and impact.
By implementing these recommendations, HiH can ensure its long-term sustainability, maximize its social impact, and continue to empower low-income entrepreneurs in developing countries.
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Case Description
The case focuses on Hand in Hand Eastern Africa (HiH EA), a member organization of Hand in Hand (HiH). HiH is a global group of non-governmental organizations (NGOs) cofounded by Percy Barnevik, a renowned Swedish business executive and Dr. Kalpana Sankar, a nuclear physicist. HiH consists of network partners in India, Southern Africa, Eastern Africa, Afghanistan, Sweden, and the United Kingdom. Their model focuses on enterprise development and job creation. However, they also have a strong microfinance program aimed at serving those nascent entrepreneurs at the very bottom of the pyramid who have limited funding options in the mainstream market. Through HiH EA's Enterprise Incubation Fund (EIF), nascent entrepreneurs are able to access loans up to US$233. Various organizational stakeholders (entrepreneurs/ clients, HiH EA's field officers) have begun to call for an increase in the EIF loan cap. This presents a challenge for Ms. Pauline Ngari, HiH EA's chief executive officer. Ms. Ngari questions whether raising the EIF lending cap will benefit all stakeholders as well as the organization itself given its long term strategic plan, its model, and core mission of serving those at the very bottom of the pyramid. Ms. Ngari is facing internal pressure to keep the organization financially sound, but she also faces external pressure to meet the short term needs of HiH EA's clientele and conform to current microfinance industry lending standards while at the same time avoiding mission drift. HiH EA's Board of Trustees will be meeting soon to consider the EIF loan cap decision and have asked Ms. Ngari to provide them a balanced and informed recommendation regarding whether or not they should raise the EIF loan cap.
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