The dilemma for a donor: Finance health care or finance the economy

 

Marcos Kisil

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The coronavirus pandemic is presenting countries with major political, scientific, social, economic and public health challenges. Pandemic preparedness and reducing risk of global spread are key concerns; however, the current situation, in which strategies are evolving, reactive and uncoordinated, is leading to an expanding humanitarian, health and economic crisis.

As there is an escalation in the spread of COVID-19, governments are extending social distancing, closing business and transportation systems. These decisions are rippling outward, highlighting a dilemma where stopping the spread of the virus comes at the expense of the economy.

A problem all nations are currently facing

Currently, one-quarter of the global population is in lockdown. Is there a way out of this dilemma? Any action that slows down the pandemic will extend the period of economic damage, and any that prioritises economic growth will create a situation in which the disease can spread unchecked.

It is a serious issue for governments at all levels. And it is also a dilemma for individual citizens that want to minimise the effects of the pandemic. Those of us who work with social investors rightly ask what we can do to effectively contribute in such crucial moment.

We need to improve the way that we learn and work together to create significant impact. One of the paths to achieve this impact is Venture Philanthropy.

What we learned from venture philanthropy, and why this approach is useful now

The current crisis is a great opportunity to exercise the citizen role to support a diverse array of needs. The support can come from individuals, from organised groups in communities, from civil society organisations, from business people. They are set in every country bringing volunteers and funds through donations. It is possible to recognise that resources goes to directly support individuals impacted by the virus, to support living expenses of unemployed and low-income households, to support small business and informal economy workers, to support health services to access equipment, disposable supplies, medication, tests.

Aid agencies and development partners alike recognise that private funders and investors, including foundations, are an important and growing part of the global development architecture.

Driven by a desire to achieve greater impact, an increasing number of social investors started to experiment with novel methods and set bolder ambitions for themselves to achieve impact on a scale proportionate to the level of complexity of problems faced by the development of a society.

Whilst the name given to the novel approaches differs – angel philanthropy, enterprise philanthropy, catalytic philanthropy, risk philanthropy, or venture philanthropy – the principles underlining them are broadly similar. Comparisons between venture philanthropy (VP) and venture capital (VC) models are numerous, but for the social investors, the differences between VP and VC are as numerous as their similarities. However, the most important element is the same: to take risk.

With COVID-19, social investors should be prepared to take risk in their urgent investments, including considering risk analysis, appetite for risks, and creating strategies and measures for coping with it.

In short, the application of Venture Philanthropy refers to a type of high-engagement impact investing which incorporates elements of traditional philanthropy through grants, venture capital, and general business strategies. Decisions remain driven by a philanthropic mission, with a more rigorous focus on measuring and managing impact results. There is a significant range in approaches under the umbrella of the general term.

VP can understand both faces of the COVID-19 – the health problem and the economic problem. It can make grants to improve and extend access to health services, but also finance small business in the basis of the social pyramid.

We are living a time to bring together grant makers, social entrepreneurs, and social investors to create a voluntary effort to cope with the major crisis that the world is facing. Venture philanthropy is oriented towards optimizing impact through a collaborative approach.

This turbulent time is testing all of us, and we are all in uncharted waters. Social investors are well placed to ensure that the undoubted negative social and economic challenges brought by COVID-19 can be addressed effectively. They, in matching with government and business leaders, can be part of a new society where solidarity, cooperation, and new opportunities can stress the importance of wealth redistribution as a moral endeavour of all.

Marcos Kisil is a Professor at University of São Paulo, ex-director of Kellogg Foundation for Latin America and the Caribbean, and founder and Board member of Instituto para o Desenvolvimento do Investimento Social (IDIS).


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