In complex systems, making change is challenging. The common idea is to add some new element or property to the system to make things better. Bring in "someone to make sales." Maybe we should add the latest hot technology we saw on Hacker News.
So rarely do these external changes make a difference. The key to complex systems like markets, nontrivial businesses, and even human minds is their internal structure. Networks consist of elements and connections. In a simple or complicated environment (using cynefin definitions), one can describe the system based on the features. In a complex system, the connections between the elements drive far more of the value. One can call this is the flip-side of the so-called "network effect" of value. This network effect is about complexity.
As such, the contribution of any single element does not simplify or add order to the existing structure. It will likely have the opposite effect as it adds more and more connections within the system.
But how then do we get a handle on improving the system? The answer is in the connections. This approach applies in contexts as small as a person to a large country.
Bangladeshi financier Mohammad Yunus received the Nobel Peace Prize in 2006. Yunus is the founder of the Grameen Bank, the pioneer in "microfinance." Grameen makes loans in much smaller amounts than in traditional banking.
The terms "finance" and "peace prize" don't usually go together. Grameen has a mission to alleviate poverty in Bangladesh by making commerce easier.
The size and term of the loans tell the tale. As part of the initial proof of concept, Yunus lent $27 of his own money to 42 individuals (all women) in a village. He charged $0.02 in interest. The borrowers repaid all the notes. He made $.84 on $27 in principal on a timetable measured in days.
Each loan was tiny - even compared to these people's incomes, so unlikely to be life-changing if one were to "keep" it. The loan was also short-term: appropriate for working capital, but not for capitalization of a depreciable asset.
The significance is that the impact he made was by making commercial transactions more manageable. The poor often do not have access to credit, and if they lack cash on hand, buying necessities for funding their businesses becomes difficult. Imagine a poor farmer who needs various goods to keep their plot operating. Or perhaps a merchant purchases goods through a supply chain. Credit lubricates commerce.
I once learned that the three factors of a debt investment are interest rate, default risk, and scale. One would ordinarily be quite concerned about money disappearing - default risk. And most banks don't do this business because since each loan needs underwriting, the administrative cost on such a small loan overwhelms the return on capital - at just about any interest rate.
The solution at Grameen - in part - is to leverage the social links in Bangladeshi society. Rather than just underwriting individuals, the bank keeps track of group membership. Group creditworthiness - the propensity of its members to repay debts - is a big part of underwriting. When a member of the group defaults, this affects the rest of the group. As such, members of a group are more likely to help each other pay off debts and police defaults. This informal social enforcement helps everyone. Now the group has actual commerce to back up its reputation, which redounds to everyone's advantage.
I write not to canonize Yunus or microfinance per se. The former is a human who has flaws - and perhaps more will become apparent. The latter is a particular technique that - like all techniques - has the potential for abuse. Nothing works in all circumstances or forever.
The purpose, however, is to show how we as entrepreneurs might look at the social and economic connections all around us to ask how we might make a positive impact in our organizations, with our markets, and on the world.
With good planning, work and luck, we can build great businesses. And if we combine these three with good intent focused on bettering the connections among us, that business can improve people's lives in a meaningful and innovative way.
Photo by manzur alam on Unsplash