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November 13, 2006

Consulting That Works - It’s NOT Free

Just got another great example of why consulting can’t be both free and effective – this time in the nonprofit sector.  “Co-pay” has been a major contributor to the success of ShoreCap Exchange (SCE).

SCE is a 501(c)(3) delivering technical assistance to third world financial institutions which enables those institutions to provide microcredit and very small enterprise loans to people who never could have gotten any sort of non-usurious loans before.  I’m a board member of SCE so I get the privilege of learning from them as they fulfill their mission and help make the world a better place.

Even before the Nobel Prize went to Muhammad Yunis last month, microfinance was becoming an increasingly popular vehicle for social change.  Now the field is red hot.  It is even possible that there will be over-investment in microfinance institutions; social investment follows trends just as for-profit investment does.

SCE was advising microfinance institutions before microfinance was nearly as popular as it is today.  The founders of ShoreBank, SCE’s parent, worked both with Yunis and on their own during the very early days of microfinance.  The banks and other institutions SCE has helped have had, on the whole, spectacular growth.  This growth means that more loans are being made to (and repaid by) those who need them the most.  Families are lifted from poverty; jobs are created.

There are many organizations offering advice and assistance to microfinance institutions; most of them provide free consulting.  ShoreCap Exchange charges its client organizations a co-pay for consulting which varies according to ability to pay.  So why do institutions pay for help they could be getting free?  The answer seems to be because it’s help worth paying for.

The fascinating part is that one of the main reasons the SCE consulting is worth paying for is BECAUSE it is NOT FREE. Client banks are much more selective about what areas they accept consulting in when that consulting costs them money.  In other words, SCE has executive attention from the getgo because real money is going to be spent.  The co-pay requirement ends up giving the client organization much more input into both the subject matter and delivery method for consulting because the client is committed to pay part of the bill.  People insist on paying attention to what they are buying; they are pretty blasé about what they are getting free.

The goodness doesn’t end there.  Just as I found years ago in the private sector, if consulting costs money, the consultants get the time and attention they need from the busy client personnel.  If the consulting is free, making time for the free consultant is at the bottom of everybody’s to-do list.  Consulting is both learning and teaching; neither can be done without the client allocating time to the consultant.

A large number of the recommendations made by the SCE consultants are actually implemented.  Why?  Both because people listen to recommendations they’ve paid for and because the co-pay assured that both management and executives of the client were involved in every step of the process which led to the recommendation. Obviously, consultants don’t do much good if their advice is ignored.

Microfinance is all about helping people help themselves.  Turns out that helping microfinance institutions help themselves is more effective than just throwing help at them.  Shouldn’t be a surprise but SCE’s co-pay model seems to be unique - and successful.

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