How to Solve Poverty? Ideas for Entrepreneurs and Companies

Author: Roberta D’Addario

Estimated reading time: 10 min

Introduction

“How to solve poverty?” is a question that people have been asking themselves for centuries and the solution looks really complex.

The inequalities in our world have always been evident to the eyes of those who had enough sensibility and common sense to question them.

But what does poverty mean?

According to Britannica, poverty is “the state of one who lacks a usual or socially acceptable amount of money or material possessions”.

It exists “when people lack the means to satisfy their basic needs”, identifying these needs not only with the ones necessary to physically survive but also with “those reflecting the prevailing standard of living in the community.”

This makes us understand how multifactorial and multidimensional poverty is, as it can be identified with lack of water and food, low levels of education and work skills, lack of money, housing problems, poor health conditions etc.

It is not a coincidence that the United Nations decided to put No Poverty at the top of SDGs, the collection of 17 interlinked global goals designed to achieve a better and more sustainable future for all.

In fact, poverty includes many of the issues addressed by the other goals.

There are some articles online explaining how to reduce poverty, but they mainly suggest actions that should be taken by Governments.

Here at GründerAtelier, we are more interested in what companies – employers and employees – can actually do to help fight poverty.

We have already written an article on why SDGs are important for startups (and companies), in which we gave some suggestions on how to develop a business around SDGs, in general.

It is now time to go a little deeper into the topic, explaining what can be done to follow SDG1 within a startup, in terms of goals and company culture.

No Poverty as a mission: not just a non-profit prerogative

A common misconception is that only non-profit organizations can have “reduce poverty” as their mission statement.

All companies, in a way, fight poverty by creating value, even though some of them do not care much about inequalities, only targeting wealthy customers.

Despite that, these firms usually offer jobs to larger sectors of the population, helping also the less affluent.

There are also, however, for-profit companies whose mission is truly to better the conditions of disadvantaged people in developed countries and/or in the poorest ones.

How can you make profit out of that and which sectors are the most common for this kind of businesses?

We will answer these questions briefly in the paragraphs below.

One of the first and tougher steps to create a company is often looking for funding.

This can be transformed into an easier task, thanks to the clear redirection of investment flows towards ESG (Environmental, Social and Governance).

This means that if an entrepreneur has a startup whose mission is working towards one of the SDGs – in this case, SDG1: No Poverty – there is a better chance of obtaining funds.

Having said that, most of the for-profit companies that are committed to eradicating poverty work in microfinance.

Microfinance, also called microcredit, is a type of banking service provided to unemployed or low-income individuals or groups who, otherwise, would have no access to financial services.

Besides the non-profit ecosystem, these services are provided by an increasing number of organizations, which, however, have lower interest rates than conventional banks.

According to Investopedia, the majority of microfinancing operations occur in developing nations, such as Uganda, Indonesia, Serbia, and Honduras.

By the way, in recent years, as University Pompeu Fabra (ESP) stated, microfinance spread to more developed countries too as a tool to face the social problems brought by economic crises (like the COVID-19’s one).

Microfinancing companies usually support a large number of activities that range from basic economic services — like traditional loans and savings accounts — to providing startup capital for small entrepreneurs or educational programs that teach investing principles.

These enterprises really have a social purpose, alongside the economical one, as they work towards reaching the neediest people to give them the financial and informational tools to improve their condition themselves, with a focus on the long-term benefits instead of the short-term ones.

But is it really possible to make a profit by lending money to the poor at low-interest rates?
The solution is to reach and give loans to a high number of beneficiaries.
So there is a virtuous circle according to which the more people you help, the higher the income.

Regarding repayment rates, Chris Brookfield, a financial professional who has been working in equity funds for years, said that, in his experience, he had a 99 per cent on-time repayment rate. Even if it may be seen as an over-optimistic statement, this gave an idea that the majority of people receiving these micro-loans repay them precisely.

Working in microfinance. however, requires highly specialized financial skills as well as sociological, anthropological and linguistic knowledge (the latter especially if one is planning to operate in non-Western countries).

Microfinance startups can be peer-to-peer lending platforms, apps or technologies to monitor transactions, data sharing platforms for investors, financial e-learning apps etc. but you can think about many more, providing products and services to reduce the financial gaps between nations and individuals.

Three startups that are currently working towards SDG1

It is time now to provide you with three examples of startups, active in microfinance, committed to SDG1, that every entrepreneur can take inspiration from.

BanQu

BanQu uses blockchain technology to work for the inclusion of financially unprivileged communities.
Founded in Minneapolis in 2015, the company uses blockchain to securely log the interactions between organizations and those facing extreme poverty.

It means that these unprivileged users can create a global economic identity for themselves by freely recording all economic activity they have engaged in. This economic profile supports them by providing a concrete economic history that will be useful for future economic engagements.

The company states that its platform is the first economic identity technology solution that uses blockchain to foster a secure environment for creating economic opportunities for those in extreme poverty.

Along with its use for record-keeping, BanQu’s platform also makes economic transactions between organizations and these people more transparent for all parties involved.

Cloq

CloQ is a Brazilian startup promoting digital financial inclusion for the unbanked population. It allows users to get instant loans directly into e-wallets.

The startup initially lends small amounts, but it increases as the users build a positive track record.
It enables poor people with a phone and internet to access low-interest nano loans, breaking the cycle of debt with loan sharks.

Rafode

Rafode is another company aiming to fight against poverty.
Based in Kenya, Rafode is a micro-financing service that provides those in need with social and financial support. This support comes in many forms, including emergency loans, school fees loans or loans for agriculture.

Like other organizations active in microfinance, Rafode does not require a deposit for its financial support.

The company is mainly active in rural areas, places that are traditionally less serviced; this to enable rural communities to spark their own evolution.

Rafode emphasizes that its services are mission-driven and guided by principles such as empathy, integrity, and social utility.

Some actions you and your employees can take in your daily lives

We have talked about the most common sector addressing SDG1 – microfinance – providing three examples of successful startups aiming to improve the poor’s condition.

Now it is time to give some suggestions to those entrepreneurs who do not and are not planning to work in the field, but are willing to take themselves and incorporate into their company culture actions that can help to reach SDG1.

Make a screening of charity organizations and find one or two of them to support regularly, giving a percentage of your income as a single or as a company every month or year.
Donate what you don’t use and encourage your employees/coworkers to do the same, also through gamification challenges. Local charities will give your gently used clothes, books and furniture a new life.
Support campaigns collecting items for victims of emergencies. Donate your clothes, food supplies etc. to support those in need.
Stay informed. Follow local and international news and stay in touch with the Global Goals online or on social media at @TheGlobalGoals.
Lend your voice and your company’s one to the fight against poverty by producing content (reports, blog articles, photos, videos and social media posts), organizing and participating in charity events, both online and offline.
Use your company’s resources for doing research in the field.

GründerAtelier’s Impact Accelerator

This was the first article of our SDGs series, which aims to make the United Nations’ Sustainable Development Goals easy to put into practice for startups and entrepreneurs, in general.

If you are in charge or work for an impact-related startup that supports one or multiple SDGs you can apply to our Impact Accelerator where we will guide you through the journey to become investment-ready and, then, introduce you to our VC partners.