A few days ago I announced that I was moving on to “Round 2″ of the Echoing Green Fellowship Application, and need your support. One of the sections on the application is a “Root Cause Analysis” where we have to break down some of the social issues that our venture addresses and prove that we are serving to ameliorate root causes rather than symptoms. Here’s my first draft — I’d really appreciate your input and feedback!

Click Here to Download “Root Cause Directions” / “Examples”

Click Here to Download my “Root Cause Draft 1″

Statement of Need: At a time when increased economic and political stability in the developing world is opening the door for new and exciting investment and economic opportunities, there is one factor that remains unaddressed: confidence. Transparency Solutions seeks to serve as a “Trust Agent” liaising between investors and investment-seeking institutions in the developing countries – unlocking economic potential and fostering an environment where integrity is recognized and rewarded.

Symptom 1: Honest and accountable organizations in the developing world are not meeting their full investment potential

Why? Because there is a high associated risk / perceived risk with investing in the developing world

Why? Because without being on-the-ground and having access to a network of reliable sources of information, there is no way to know good organizations from bad ones and properly assess risk

Why? Because many / most countries in the developing world have historic track records of corruption and suffer from high perceptions of corruption – deeply affecting credibility and putting investment-seekers in a position where they are assumed corrupt until proven otherwise

Why? Because our perceptions are based on information we have available to us, and there is a cataclysmic information asymmetry between the developed and developing worlds

Root Cause: Without access to credible in-country intelligence, investors face high risks (both actual and perceived). There are few tools that can easily be used to distinguish honest and accountable organization from the corrupt and financially-hemorrhaging institutions.

Intervention Needed: There needs to be an independent organization that certifies legitimate organizations, maintains a continued in-country presence with community-based engagement, and can serve as a credible liaison between investors and investment-seekers.

***

Symptom 2: Donations and Foreign Assistance Are Being Lost to Corruption and Preventable Inefficiencies

Why? Because donors don’t have access to timely and credible information about how their money is being spent

Why? Because funding organizations often remain in the dark or discover failures after it is too late

Why? Often because they put too much trust and faith in the honesty of their staff (who have the incentive of lying to keep the money flowing). Many organizations have found out about their inefficiencies losses through investigative news reports!

Why? Because the costs associated with conducting due diligence internally would include hiring dedicated staff (salaries and benefits), paying for plane tickets and expenses. It’s expensive, usually retroactive or after-the-fact, and is done in the style of a one-time spot check rather than a deep engagement.

Root Cause: Conducting effective due diligence internally is costly and unreliable.

Intervention Needed: An organization like Transparency Solutions can pool together the resources needed to carry out due diligence in-country and benefit from economies of scale. Using the same network, the same staff, and the same tools we can provide cost-effective and independent due diligence for many clients.

Funding agents will then have access to the auditing information immediately through their online portfolio, and can act / react accordingly before too much money is lost into an inefficient or corrupt program.

***

Symptom 3: Environment for Corruption is Being Perpetuated in Developing Countries

Why? Because when individuals and organizations weigh the costs and benefits of corruption, the reward often outweighs the risk or opportunity cost

Why? Two reasons: A. Because they are not likely to be caught, and B. even if they do get caught they can likely wrangle another donor/investor into supporting them

Why? A. Because investors and donors are not likely to do the proper due diligence or follow-up, reducing the chances of getting caught. And B. Because of the lack of transparency, there is most likely no record of that previous association or “falling out”.

Why? Again, because of the cost and logistics of doing due diligence in the social sector. But also because reliable information is hard to access in the developing world.

Root Cause: Lack of oversight reduces the risk of getting caught, and there is virtually no reward on integrity

Intervention Needed: There needs to be a credible source liaising between investors and the developing world. Increasing access to reliable information will lead to more accountable investment. When integrity can be recognized and rewarded by investors, the opportunity costs of corruption skyrocket – providing an opportunity to fundamentally shift the dynamics that perpetuate corruption.

Please leave your comments on the post, e-mail me a marked-up .doc file, or  Contact Me directly!

Thank You!