If someone recommended a movie about super-rats, mobile sewers and electric soccer balls you’d probably think it was something out of science fiction. Actually, it’s something out of social innovation.

The global research firm McKinsey partnered with ViewChange.org to release a documentary based on over 150 video submissions about budding social innovations. The video highlights some of the innovations including a mobile sewer removal tank, rats trained to clear landmines and a soccer ball that stores electricity and doubles as a lamp.

The half-hour documentary interviews some of the leading voices in social innovation who help explain the concept:

The essence of social innovation is finding new ways to solve old problems. - Lynn Taliento, Parker, McKinsey & Company

Design thinking is a way of thinking about problems and a way of bringing in the environment where something is going to be used, the people who are going to use it and the system in which it’s embedded and wrapping all of that up into the production of particular type of ‘thing,’ an object or a product or a service. - David Kilcullen, CEO, Caerus Associates

A lot of people are attracted to this realm because it combines their innate desire to do something good along with the possibility to tie it into something innovative in terms of technology or approach. - Tom Freston, Chairman of the Board, ONE

While it might not be science fiction, social innovation can be just as fascinating.

RELATED CONTENT: The sOccket: A Soccer Ball that Generates Electricity

Frontier Market Scouts Program at the Monterey Institute of International Studies
Social Enterprise and Impact Investment Management Fellowship

The Frontier Market Scouts (FMS) Program selects and trains aspiring professionals who desire a career in social venture and impact investing. Jointly developed and managed by the Monterey Institute of International Studies, Sanghata Global, and Village Capital, the FMS program turns compassionate and capable young professionals into talent scouts and investment managers serving local entrepreneurs and social-minded investors in low-income and weak-capital regions of the world.

The scouts provide due diligence for investors and technical assistance for entrepreneurs with the goal of generating high-quality deal flows and supporting portfolio companies at a low cost. The Scouts’ mission is to enable the enterprising poor to scale poverty alleviation in capital-weak areas of emerging markets, while gaining career defining and life changing experience.

Fall 2012 placement partners include:

Village Capital (www.vilcap.com)
The Shell Foundation (www.shellfoundation.org)
Invested Development (www.investeddevelopment.com)

Benefits: Program provides a graduate-level pre-departure training, un-matched experience with industry leaders and projects, and a minimum $200 monthly stipend. Additional funding to offset travel and living costs may be available.

Interested June-December 2012 fellows should apply online at http://go.miis.edu/fmsapp by April 1, 2012. For more information visit http://www.fmscouts.org or contact Carolyn Taylor Meyer at (831) 647-6417.

A rise in borrower suicides in India has raised questions about the for-profit microfinance model. Photo: Mayur Paul/HelpAge International (Flickr)

"Work hard and make money. Do not take loans.”

That was the suicide note left by 18-year old Pelta Lalitha of Godhumaguda village in India.

Pelta was among more than 200 Indians who committed suicide in late 2010 because they were unable to repay their microloans. The deaths, reported last week by the Associated Press, have critics rushing to denounce microfinance. But a closer look suggests that profits, not microfinance, are the true culprit.

According to the AP, an internal probe commissioned by SKS Microfinance Ltd.—India’s largest microfinance institution (M.F.I.)—found that the company was directly linked to seven suicides in the Indian state of Andhra Pradesh. SKS loan officers allegedly harassed borrowers, forced them to sell their belongings and even instructed them to kill themselves if they couldn’t pay: In one case, a loan officer apparently told a woman to drown herself if she wanted her debt forgiven. The following day, the mother of four threw herself into a nearby pond and died.

SKS has denied involvement in any of the deaths. Still, it has become the focus of public scrutiny over the allegations, partly because of its status as a publicly traded, for-profit business.

In 2010, SKS became only the second M.F.I. in the world to go public, with an initial public offering (IPO) worth hundreds of millions of dollars. The offering attracted investors such as JP Morgan and Morgan Stanley, and raised eyebrows among leaders in the microfinance industry, including Dr. Muhammad Yunus of the Grameen Bank:

"The concern is that when you put an IPO, you are promising your investors that there is a lot of money to be made and this is a wrong message. Poor people should not be shown as an opportunity to make money out of."

So was the for-profit structure—which puts the interests of shareholders before those of poor borrowers—to blame for the meltdown? The answer lies in the SKS business model.

Between 2004 and 2010, the SKS loan portfolio grew by 165 percent. As the company sought to raise private capital for the 2010 IPO, SKS took inspiration from companies such as McDonalds and Starbucks to develop a program that trained over 500 new loan officers per month.

As the company grew, loan officers began ignoring protocols. Although loan officers were instructed not to form more than 36 groups per month, an SKS loan officer reportedly formed 273 groups. According to the AP, current and former SKS staffers also complained that they no longer had the time to review borrowers' assets and business plans. Still, they were pressured to give clients bigger and bigger loans, even when they could not repay: One woman was lent 150,000 rupees ($3,000) when she only earned 600 rupees ($12) per week.

"Professor Yunus was right," admitted SKS founder Vikram Akula at last week’s Harvard Social Enterprise Conference. "Bringing private capital into social enterprise was much harder than I anticipated." Akula had apparently tried to bring attention to the suicides at a board meeting last summer, but was ignored. He was pressured to resign from his position as CEO in late 2011.

No matter how you look at it, something went horribly wrong in Andhra Pradesh. But is the microfinance model itself to blame for the suicide deaths? Or did the hunt for profits overtake the social mission that companies like SKS were founded on?

Providing microcredit is expensive, and most M.F.I.s struggle just to break even. Because the loans are so small, and locating and servicing poor, rural borrowers costs so much, microfinance was never intended to be particularly profitable. That's also why traditional banks are unwilling to provide credit to the poor; it just isn't financially viable.

Therefore, in order for a publicly traded company to profit from a portfolio of microloans—while also satisfying shareholders and investors who expect big returns—something had to give. In the case of SKS, this meant rapid growth at the expense of the best practices developed over decades of lending to the poor. Rather than focusing on training the best employees, SKS opted for a system that churned out loan officers like Starbucks baristas. Instead of taking time to learn about their clients' finances, loan officers were pressured to lend as much money to as many people as possible, regardless of their ability to repay the resulting debt. And when borrowers ultimately could not pay, SKS opted for coercion over flexibility in order to protect its bottom line. The result was mass defaults and suicides.

It comes down to this: The world’s poor need financial services. Banks cannot provide small loans to poor people, and so they turn to microfinance institutions for access to credit. Without M.F.I.s, the poor would be forced to rely on local moneylenders, who, in some cases, charge interest rates as high as 200 percent per day.

While profits are important to the sustainability of M.F.I.s, the decision by SKS to go public blurred the line between self-sufficiency and pure profit motive. Therefore, given the damage done to the reputation of microfinance by irresponsible lenders like SKS, maybe it's time to go back to basics.

The father of microfinance, Muhammad Yunus, started Grameen Bank in 1976, with a simple model focused solely on lifting the poor out of poverty. In a January op-ed for the New York Times, Yunus lamented the rise of for-profit lenders such as SKS:

"I never imagined that one day microcredit would give rise to its own breed of loan sharks. But it has. And as a result, many borrowers in India have been defaulting on their microloans, which could then result in lenders being driven out of business. India’s crisis points to a clear need to get microcredit back on track."

More consumers are choosing products that are both hip and support a cause. Photo:mariahfleming (Flickr)

This article was republished in The Christian Science Monitor.

We already know that good marketing does not equal good aid. Tom’s Shoes has earned a fair amount of criticism for its “One for One” model—a pair of shoes is donated to a child in need for every pair bought by the consumer—but, after seeing the marketing benefits, more and more for-profit businesses are using a similar model to donate goods in developing countries.

Here's the basic problem of the “One for One” model: when everyone in a community can get a free pair of shoes, the local shoe vendor goes out of business. Not only does it hurt the local economy, but it is also a short-term solution that creates long-term problems. Tom’s model may also encourage poverty tourism, as the company allows people to pay to travel along with distribution trips as shoe fitters. Niharika Jain writes more in-depth about the unintended consequences of charitable giving for the Harvard Crimson, and Peace Corps volunteer Zachary Mason discusses Tom’s Shoes from a public health perspective, questioning the cost-effectiveness of the model for reducing disease.

Despite the unintended consequences of its “One for One” program, Tom's has a cult following. Chances are if you don’t already have a pair, you know someone who does. Is Tom’s merely a fashion statement, or are consumers drawn to the company for its cause, creating an atypical status symbol? It’s hard to know what motivates individual purchases of Tom’s products, but a 2010 Cone Cause Evolution study shows that 85 percent of consumers surveyed feel more positively about companies that support a cause they care about. When price and quality are equal, most consumers choose the product supporting the cause.

If we want to be socially conscious consumers it’s important to understand the impact of Tom’s and similar products. We can learn from Tom’s marketing success, but to alleviate poverty in the long-term we need to promote sustainable programs the support local economic development.

Warby Parker, another for-profit enterprise that donates its product in developing countries, is getting a lot of attention for the innovative way that it sells eyewear to the consumer and sends glasses around the world to people who can’t afford them—earning them the B Corp status. Like Tom’s, they are popular among the fashion-conscious and have a hugely successful marketing campaign.

Warby Parker partners with a non-profit called Vision Spring in order to donate their glasses abroad. Vision Spring is in tune with how local economies function and what kind of products are culturally appropriate—something that Warby Parker itself may not have the resources to know. Vision Spring receives funding and glasses from Warby Parker to train low-income local entrepreneurs to start their own businesses selling glasses at affordable prices.

Warby Parker uses the same “buy one, give one” strategy as Tom’s, which is successful at attracting consumers, but is sensitive to the impact donations have on local economies. Warby Parker and Vision Spring’s mission is to help entrepreneurs sustain a business and to create jobs—not create a dependency on unpredictable donations which unintentionally creates economic stagnation.

As socially conscious consumers, we should reserve some skepticism for businesses that claim to do good. Transparency and randomized studies are need in order to assess their impact. A recent randomized control trial by the University of Michigan found that people who bought Vision Spring glasses earned 20 percent more, but more research is needed. It is also promising that Vision Spring is continually learning and evolving its strategy to increase its impact, as recognized by Duke's Fuqua School of Business Center for the Advancement of Social Entrepreneurship.

This partnership between a for-profit business and a non-profit looks promising and solves some of the problems with Tom’s “One for One” model. “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime,” is what we’re told. It’s an excellent example of the ability of corporations and non-profits to do what they do well and team up to do good. Hopefully, organizations that inform consumers—like B Corp—will make this kind of partnership more attractive.

Have you bought or would you buy Warby Parker glasses and Tom’s Shoes? What drew you to the brand?

Monica Gerber is a 2011 graduate of Reed College. Read her other contributions to Global Envision.